 This hearing will come to order. Without objection, all members opening statements will be made part of the record. The chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to this witness and to place his response in the record. I want to welcome our witness today, President Honig, and I will open up the hearing with an opening statement from myself. Over the years, I've been interested in the transparency of the Fed, and the Fed's been interested in the independence of the Fed. But since I know what Mr. Honig is interested in, I think he truly represents the right kind of independence that I like, because he's a rare individual to be at the Fed, or on occasion to be a member of the FOMC. But I want to note that last year, when just virtually everybody was endorsing and welcoming QE2, he was descending against this position, I believe, about eight times. So that, to me, is truly remarkable and shows that he's obviously an independent thinker. My interest, of course, in the monetary system has been related to the accumulation of debt. I believe they are related. And that size of government is indirectly affected by monetary policy as well. If debt can be easily monetized, the temptation for Congress to spend money is always there. And I think that is a big, big distortion. And Mr. Honig has made his points made very clear that maybe interest rates of 0% to 1.5% might be too much and actually has said, made statements about part of our problem prior to the crash of 0.8% was the fact that interest rates were too low for too long. And I often think about and like to clarify and expand as much as possible the relationship of the problems that we have there to our privilege of issuing the reserve currency of the world. Obviously, nobody quite has that same benefit. And therefore, our debt and our bubbles can get far more exaggerated than if you're an independent country and your debt is numbered in a currency that the world doesn't accept like they accept our dollars. So though that might be a very positive thing on the short run and give us some benefits, it also may be misleading to us because it is deceiving and thinking that this process can go on, on forever. Today, we're in the middle of a default crisis where we're in about whether the national debt is going to be increased. And I have an opinion that the default, once it gets so big, once the debt gets so big, default is virtually impossible to stop. And that the default that we're worrying about right now is not strange and brand new because in many ways, our country has defaulted. If you look at the inability to follow up on the promises to pay a gold certificate in the 1930s, that was a form of default. And then we promised to pay foreigners gold for $35. And we eventually had to quit doing that. And then we promised to pay the American citizens a dollar for a silver certificate. And we defaulted on that. And eventually, those silver certificates were not worth a silver dollar, but they were then worth a Federal Reserve note. Even in 1978, we met a major crisis, it was a dollar crisis. And we were not able to maintain the value of the dollar. And we went hand in hand to the IMF and actually got approximately $25 to $30 billion of boost to prop up our dollar at that time. So for me, that's a form of default. And I believe we've embarked on a system where default is going to come. And I think the argument in the impasse is because nobody wants to really admit that the default is here and we have to face up to it. The argument is, how do we default? Are we going to quit sending the checks out? Or are we going to do the ordinary thing that countries have done for years and that we continually do? And that is, we pay off our debt with money with a lot less value. To me, that is a default. But I see that as being unfair because some people suffer more than others. And therefore, we will eventually be pushed into some serious talks about monetary reform, which I believe are actually occurring already in international circles. But my five minutes has passed, and now I will yield to Mr. Clay, five minutes. Thank you, Mr. Chairman. And thank you for conducting this hearing on the impact of monetary policy in the state of the economy. The Full Employment and Balance Growth Act of 1978, better known as Humphrey Hawkins, set four benchmarks for the economy. Full employment, growth and production, price stability, and the balance of trade and budget. The Humphrey Hawkins Act also charges the Federal Reserve with a dual mandate, maintaining stable prices and promoting full employment. According to the Department of Labor in June, the nation's unemployment rate was 9.2%. Over 14 million Americans are looking for work. Another 5 million are underemployed at jobs that pay much less than they previously earned and offer few benefits. And in urban areas like the district that I represent in St. Louis, the unemployment rate among African Americans and other minorities is over 16%. The majority party has been empowering this house for over 200 days, and yet we have not seen one jobs bill and America is still waiting. I'm eager to hear what additional steps the Federal Reserve is willing to take to free up the flow of credit, to small businesses, and encourage major banks to finally invest in this recovery instead of sitting on the sidelines with trillions of dollars that could be creating millions of jobs. I also look forward to the witnesses' comments regarding what other urgent steps Congress can take to spur private sector job growth and restore confidence in our economic future. And with that, Mr. Chairman, I yield back. I thank the gentleman, and I yield to Mr. Lukamauer. Thank you, Mr. Chairman. Thank you, Mr. Chairman, for holding this hearing today and continuing the dialogue. I first want to recognize today's witness, President Tom Hunt, has been a voice for reason and fiscal conservatism during a time when many of our economic policies have been weak. Tom has often been a lone dissenter who has encouraged sound economic principles over politically expedient ones. Our nation is grateful for his service. President Honing has expressed concern over the Federal Reserve monetary policies. Personally, I remain troubled by the expansionary role the Fed seems to have been championing over the last several years. What's more upsetting is the fact that we don't seem to be any closer to changing course and abandoning policies, even though they don't seem to have worked. While the third or third round of quantitative easing looms, our economy remains stagnant. Our jobless rate continues to hover above 9%. Bank lending is still constrained, and we have seen little evidence of a long-term economic growth. Abroad, the credit markets have indicated that austere measures be taken by troubled governments. We were headed down an identical path. Since 2008, the Fed has purchased several trillion dollars of U.S. Treasuries, many of which are still held by the bank. We have been warned time and time again unless we get our fiscal house in order, our credit rating is likely to be downgraded. Considering the amount of treasuries held by the Fed, the solvency of our central bank will undoubtedly be affected by this downgrade should occur. The currency rate of our economy combined with the problems we could face in near future results in a recipe for economic distress. The Fed must begin to seriously examine the policies in place and plan for worst-case scenarios that could overwhelm our nation in coming months. Congress rarely hears from the 12 regional Fed presidents. This is unfortunate, given their role as a financial regulator in our communities as an independent voting member on the Federal Open Market Committee. I appreciate President Holdings' willingness to be here today. I look forward to his testimony that, Mr. Chairman, I yield back. I thank the gentleman I yield now to Mr. Green from Texas. Thank you, Mr. Chairman, and thank you for appearing today, sir. Trust that you will find our committee hospitable. I think that we have many concerns that we can address. And of course, I'm concerned about inflation, concerned about unemployment, concerned about the quantitative easing and the possibility of another round of quantitative easing. But I must also say to you, I still believe in America, and I really don't want this to come across as we have lost faith in the country that has produced so much for so many. America is still a pretty good place to live, pretty good place to have your dreams, your hopes, and your aspirations fulfilled. So as we, or as I, I'll speak for myself, as I make my queries and make my inquiries known, I don't want to give the impression that I don't, I no longer have faith and belief in this the greatest country in the world. I am concerned, sir, about the widening gap. And I'm not sure that you can address this, but if you have some intelligence that you will share, I would appreciate it. But the widening gap between what we commonly call haves and have nots, that's a real concern. I've seen some information published indicating that Latinos, African Americans, and Asians have had a great widening in the gap between these groups and some others. That concerns me. I'm also concerned about this crisis that you have very little control over. You may be able to influence it, but little control, and that's the raising of the debt ceiling, as we call it. This ceiling is something that has become a crisis, but it really is a political problem that has somehow developed a, evolved into a crisis, a political problem that has evolved into an economic crisis, if you will, only because the politics have not come together appropriately. And I still believe that we'll get it right. I think that there's still time for us to raise the debt ceiling. But these are some of the concerns that I hope you'll be able to address today from your regional perch. I think highly of you, and I am interested in hearing your views. I have a lot of respect for you, and I thank you for appearing. I yield back the balance of my time as chairman. I thank the gentleman now I yield to the full committee's chairman, Mr. Bacchus. Thank you, Chairman Pollock. Commend you for holding this hearing to examine the state of the economy from the perspective of a regional federal reserve bank president. And I thank you for inviting Governor Honig, who I consider to be a superb regional president. Tom Honig, or Dr. Honig. Honig is the longest serving of the 12 presidents of the regional federal reserve banks. Perhaps happily for him, but sadly for many of us who admire his wisdom, he is soon to retire from that post. You will be missed. Dr. Honig has been a steadfast, independent voice among those in the inner circle of Federal Reserve Chairman Ben Bernanke, and before that Chairman Allen Greenspan. He has been particularly outspoken recently in cautioning against the overly stimulative efforts of the Fed, including the so-called QE2 quantitative easing program that ended last month after adding an additional $600 billion in bonds onto the Federal Fed's balance sheet. The New York Times said that Dr. Honig's cautious views clearly shaped by having worked at the Kansas City Fed during the runaway inflation of the 1970s and the bank failures of the 80s, and I quote, same-rooted and agrarian and populist tradition that is mistrustful of concentrations of power, end quote. I think that's a healthy fear. It is not surprisingly then that Dr. Honig has spoken forcefully on the subject of downsizing the biggest of the country's large bank, including a 2009 speech he titled, Too Big Has Failed. I can tell you that on this side of the aisle that many of us are in wholehearted agreement with you, and we have looked on with alarm as there's been a greater and greater concentration of quote, too big to fail institutions. I mention all this not only to salute you, Dr. Honig, for your career and your, I guess, bravery in speaking out, but also to make a comparison between your views and with the view that is held by some in Washington that regional Fed presidents should not be allowed to vote on monetary policy moves made by the Federal Open Market Committee. Somehow this view holds that regional Fed presidents are captive of big business in the industry, and I can tell you that you're a very good exhibit against that. In fact, I think that more often than not, our regional banks are more tuned to Main Street, and of course, you're not the only independent thinker among the regional bank presidents, but your appearance here today will serve as a good rebuttal to the view that the Federal Reserve Bank Board of Governors and Washington, DC need less input from the regional feds and the rest of the country. Actually, they need more, so thank you, Dr. and I yield back a balance of my time. I thank the chairman and if there are no other opening statements, we'll go to the introduction of the witness. I want to welcome Dr. Thomas Honig, who has been the president of the Federal Reserve Bank of Kansas City for the past 20 years and is the longest serving policymaker at the Fed. While a voting member of the Federal Open Market Committee in 2010, he voted against keeping interest rates at zero, casting the only no vote on all eight FOMC meetings. He has been a local critic of the Fed zero interest rate policy and QE2. He will be retiring in October, having reached the feds requirement, retirement age of 65. Mr. Honig, you're free to recognize. Thank you, Chairman Paul and members of the subcommittee. I want to thank you for this opportunity to discuss my views on the economy from the perspective of a president of a Federal Reserve Bank of Kansas City. And as you said, a 20-year member of the Federal Open Market Committee. The Federal Reserve's mandate, if I can just read for a second, states that the Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. Within the context then of long run, I see the role of the central bank is, in fact, to provide liquidity in a crisis and to create and foster an environment that supports long run economic health. For that reason, as the financial crisis took hold in 2008, I supported the FOMC's cuts to the federal funds rate that pushed the target range between zero and 0.25%, as well as other emergency liquidity actions taken to staunch the crisis. However, though I would support a generally accommodated monetary policy today, I have raised questions regarding the advisability of keeping the emergency monetary policy in place for 32 months with the promise of keeping it there for an extended period. I have several concerns with zero rates. First, a guarantee of zero rates affects the allocation of resources. It is generally accepted that no good, service, or transaction trades efficiently at the price of zero. Credit is no exception. Rather, a zero rate policy increases the risk of misallocating real resources, creating a new set of imbalances or possibly a new set of bubbles. For example, in the 10th Federal Reserve District, Fertile Farmland was selling for $6,000 an acre just two years ago. That land today is selling for as much as $12,000 an acre, reflecting high commodity prices, but also the fact that farmland loans increasingly carry an interest rate of far less than 7.5% the historic average for such loans. And with such low rates of return on financial assets, investors are quickly bidding up the price of farmland in search of a marginally better return. I was in the banking supervision area during the banking crisis of the 1980s, when the collapse of a speculative bubble dramatically and negatively affected the agricultural, real estate, and energy industries almost simultaneously. Because of this bubble, in the Federal Reserve Bank of Kansas City's district alone, I was involved in the closing of nearly 350 regional and community banks. Farms were lost, communities were devastated, and thousands of jobs were lost in the energy and real estate sectors. I'm confident that a highly accommodated monetary policy of the decade of the 1970s contributed to that crisis. Another important effect of zero rates is that it redistributes wealth in this country from the saver to the debtor by pushing interest rates on deposits and other types of assets below what they would otherwise be. This requires savers and those on fixed incomes to subsidize borrowers. This may be necessary during a crisis in order to avoid even more dire outcomes, but the longer it continues, the more dramatic the redistribution of wealth. In addition, historically low rates affect the incentives of how the largest banks allocate assets. They can borrow for essentially a quarter point and lend it back to the federal government for purchasing bonds and notes that pay about 3%. It provides them a means to generate earnings and restore capital, but also reflects a subsidy to their operations. It is not the Federal Reserve's job to pave the yield curve with guaranteed returns for any sector of the economy, and we should not be guaranteeing a return for Wall Street or any special interest groups. Finally, my view is that unemployment is too high, in part because of interest rates were held to an artificially low level during the period of the early 2000s. In 2003, unemployment at 6.5% was thought to be just too high. The federal funds rate was continuously lowered to a level of 1% in an effort to avoid deflation and to lower unemployment. The policy worked, but only in the short run. Though full effect, however, was that the U.S. experienced a credit boom with consumers increasing their debt from about 80% of their disposable income to 125%. Banks increased their leverage ratios, asset to equity capital, from around 15 to one to 30 to one. This very active credit environment persisted over time and contributed to the bubble in the housing market. In just five years, the housing bubble collapsed and asset values have fallen dramatically. The debt levels, however, remain, impeding our ability to recover from this recession. I would argue that the result of our short run focus in 2003 was to contribute to 10% unemployment five years later. That said, I am not advocating for tight monetary policy. I'm advocating that the FOMC carefully moved to a non-zero rate. This will allow the market to begin to read credit conditions and allocate resources according to their best use rather than in response to artificial incentives. More than a year ago, I advocated removing the extended period language to prepare the market for a move to 1% by the fall of 2010. Then, depending on how the economy performed, I would move rates back towards more historic levels. I want to see people back to work, but I want them back to work with some assurance of stability. I want to see our economy grow in a manner that encourages stable economic growth, stable prices, and long run for employment. If zero rates could accomplish this goal, then I would support interest rates at zero. Monetary policy, though, cannot solve every problem. I believe we put the economy at greater risk by attempting to do so. Thank you, Mr. Chairman, and I do look forward to the committee's questions. I thank you for your statement, and I would like to ask, without objection, your written statement will be made part of the record as well. Thank you. I would like now to yield to Mr. Bacchus for any questions he would like to ask. I thank the chairman. You know, as I said in my opening statement, you have been firmly outspoken about monetary policy decisions. The Fed recently issued guidelines on how and when Federal Open Market Committee members should discuss or could discuss monetary policy decisions. Do you view this as an attempt to control the message or to stifle descending voices? And probably more importantly, Chairman Bernanke has promised a more open Fed, a more transparent Federal Reserve. And these guidelines, at least to me, seem a little inconsistent with restrictions on your ability to speak out. But I'd like to know your views on that. Well, I hope not. I think part of the reason for the guidelines are that there were instances, frankly, where I would wake up on a Thursday morning and find what the future policy might be in the Wall Street Journal not having known about it. And I think I raise objections to those kind of leaks and ask that they be vigorously pursued to be quite frank. So I hope that's the reason. Secondly, my approach is that I speak publicly on the record, I try not to speak off the record so that there isn't any confusion. And so when I come here or wherever I go, I speak my views, I don't consult with the Board of Governors, I don't ask permission. Now, I have till October, I realize, but I've never done so. And if I were staying on, I wouldn't do so in the future. So I think it's a matter of personal choice. I don't think any of the members should disclose confidential information or leak to the media in advance. I strongly object to that. And I would have every intention to speak on the record. My views publicly, regardless of what that statement might otherwise say. And I don't think that statement prevents me from doing so. Good. So the guidelines are more designed to keep unauthorized releases and releases that aren't a part of the public record. That's a context in which they came up. The fact that they're there, I think, could have the effect of stifling some, but I think that's a matter of someone saying, I'm spoken to this, this is my view, and show the leadership to speak their views. Good. I can't hear that, I think. But affirmation, I think Chairman Bernanke has tried to have a more open fed. And I think he's been very candid with our committee. In your testimony, you used the rapid increase in farmland value as an example of maybe credit misallocation resulting from what you see as a too low federal funds rate. Do you see any other bubbles building? Well, I don't, you know, in fact, when people have asked me about the land, I've not said it's a bubble, but I do say that we have conditions. We've created conditions, zero interest rates, QE1, QE2, create conditions that are amenable to bubbles. And where we see asset values moving quickly, one example is in the farmland. I think you can see it in other areas, some of the bond markets and so forth. And so you have to be aware of that. And I think my issue is that when you create conditions for certain outcomes, they will eventually arrive unless you withdraw those conditions in a timely fashion. And then I think that's really the issue at hand. Okay. The Fed used to say it specifically did not want to use monetary policy to reduce froth in the markets. Chairman Greenspan said that in front of this committee, any number of times, made that statement, but is it appropriate for the Fed to avoid dealing with the buildup of asset bubbles, but on the other hand, conduct monetary policy aimed at reflating a market? I think my view is that monetary policy should be conducted with a long-term focus with, if you will, boundaries around its discretion and therefore should not be in a position of creating froth in the market anymore than it should try and somehow pinpoint some sector of the economy that they think is, or that it thinks is too frothy and try and adjust that. So really what you have to do is conduct monetary policy towards the long run. It's when you try and fine-tune monetary policy directed towards particular sectors or to offset every short-term decline in the economy with extensive easing of monetary policy that you create instability as likely as deal with it. Thank you. I'll come back in the second round and ask another. I do want to say this, and just for throwing out for thought and not asking for a reply now. I've actually believed that QE2 gave the Congress an opportunity or some time to move to make some long-term structural changes in our entitlement programs. It's an opportunity that, whether it was intended for that purpose, it certainly gave us an opportunity and I kept financing the debt at a low rate maybe, but the Congress has squandered that opportunity at least to this time. So I do believe that Chairman Bernanke's job has been made harder by the inability of this Congress to make the tough decisions and particularly to make needed structural changes in our entitlement programs. And I think we will continue to make problems for the Fed and probably result in inflation ourselves, some of our actions, so thank you. I thank the gentleman. I yield five minutes to Mr. Green. Thank you. Again, I thank you for appearing today, sir. Let's start with the debt ceiling and if you could be as terse as possible because I have a couple of other questions. Can you give your opinion as to the consequences of our failure to raise the debt ceiling? And if you can be brief, I would appreciate it, although I know it's impossible on this question. Well, I mean the failure to address your budget issues is an action, it's a choice. And the consequences of doing that are to add to the uncertainty in the economy. So the effects will be, I think, in that sense, adverse. I think the economy would do well with a dressing the budget crisis and the budget problems and providing more stability and more certainty. In your opinion, would it be better to not raise the debt ceiling or to raise it and have it done in what we call a clean fashion? If with those two choices, I know there are many others, but is it better to raise it and have a clean raising of the debt ceiling as opposed to not raise it at all? I mean, the only answer I can give you to that is, you really need the Congress, that's the Congress's area of responsibility. But I'm talking about the consequences. But you need to deal with it as forthrightly as possible. I understand, but the consequences, are the consequences more severe if we don't raise it than if we raise it with a clean ceiling? I think the consequences are there regardless. It's a matter of the timing of the consequences and how you just want to accept those. In your opinion, it could be just as bad to raise a debt ceiling as we've done in the past. Just have a clean raising of the debt ceiling. That would be just as bad as not raising it at all? I don't know what the consequences will be any more than anyone else does. I know, but you're in the business of prognosticating because that's what you do to decide whether you should raise it the 1% if you're talking about it here. I mean, if you want my prognosis, honestly, I think what you need to do is address the budget crisis. I understand, but I'm not ready to go there. You see, I'm giving you a set of circumstances and I'm asking you, if you would, to address this set of circumstances. I know what you would like to do. I've been reading a little bit here and I understand your point of view, but I'm taking you out of your comfort zone and from time to time, but do this. It's not mine to decide it's yours. I don't want you to decide. I just want you to tell me about consequences of not deciding. Well, if you don't raise the ceiling immediately, then the Congress and whomever else has to prioritize its future cash flows. If you do raise it, you also will have to prioritize it over time. Well, let's go to another area. You have to make choices. I understand. My time is about up. Let me go to another area quickly. You wanted to prepare the market for a 1% increase by the fall of 2010. Is that a fair statement? Yes. And that was in an earlier part of 2010. Okay, I understand. Circumstances were different than now, but if we had done this, we'd prepared the market as you had hoped we would. What were your thoughts in terms of what would occur? Well, interest rates would still be at historic low levels. Monetary policy would continue to be highly accommodative, but yet you would be off a zero. You would be no longer pumping enormous amounts of liquidity into the market. And the market would know, right now the market, what you're doing is you're at zero. So you're creating, the market is adjusting to zero in all its allocations, in its investments, in its bond funds, in its land, around an equilibrium of zero. I think most people acknowledge that zero is not sustainable. So the longer you allow that to continue, the longer you allow that allocation of credit and assets around zero, the sharper, the more fragile the equilibrium and the sharper the consequences when you finally do remove that zero. And I think the more far we've done- Let me have a quick follow-up because I've only got 30 plus seconds. You do agree that we don't have as much lending now as we need for the economy to recover. And if we don't have that lending at zero, what would be the circumstance at 1%? I don't think that the issue around lending is related to the immediate policy of the Fed funds rate being zero. It's around the issues of the fiscal uncertainty. It's around the issues of whether we have a resurgence of manufacturing in this country that's sustainable. It's around the issues of how we create goods because it's the creation of goods and services that bring jobs in. And I don't think that the marginal choice for most businesses around whether they would do this of zero or a half a percentage point or one percentage point is the deciding factor in that. My time is up and you've been very generous, Mr. Chairman. I thank you and I'll wait for a second round and I'll follow up. I thank you, gentlemen. I'll yield myself now my five minutes. I wanna talk about the relationship of the Federal Reserve policy and monetary policy with the debt increase. We all know that the Federal Reserve is the lender of last resort. Economy gets into trouble, liquidity dries up, the Fed is supposed to be there to help out. But could it be that this concept of lender of last resort contributes to the deficit problem? And what I'm thinking about here is that politicians, we in the Congress get pressure from a lot of areas to spend money and sometimes spending money helps us get reelected. So there's a lot of domestic needs in our districts and also there's a lot of activity around the world, both violent and nonviolent, requires a lot of money. And in the inflationary part of the cycle when things seem to be going well, it's very tempting for Congress to spend a lot of money. But if the Fed is always there to keep interest rates low, doesn't that just encourage us and when Congress generally is undisciplined? But doesn't the policy feed into this because if the Fed didn't do this, if they weren't our lender of last resort and interest rates started bumping up, we couldn't blame the Fed for our problems. We'd have to blame ourselves, high interest rates because we're sucking up all the credit. Do you see a relationship between Fed policy and the encouragement or the allowing Congress to spend more than they should be? I think there is always the danger that the central bank can be put in a position of buying the government's debt. Now, that's why you have an independent central bank and why the independent central bank has to pursue long run monetary policy geared towards what the basic money-based requirements and needs are for the growth of that economy. And it does require not only that the Congress be disciplined but that the central bank be disciplined as well and not allow themselves to get drawn into that, yes. But in a way, doesn't your testimony verify that maybe the Fed didn't do their job because they kept interest rates too low for too long and we were part of the problem? So how do you protect against that if the Fed is as fallible as the Congress? Well, there's no system that's infallible, whether it's the central bank doing this or the Congress doing it. There's no system that's infallible. What you have, yes, I think that in the early part of the decade of the 2000s, that as I've said many times, the policy was kept too accommodative, too long. The consequence of that was to create a credit bubble. It affected not only the Congress, but of course the credit markets generally became very active. That's why we had the tremendous expansion in credit and housing and later the consequence. That is an area that we have to learn from and go forward from. I don't think it's directly related in terms of the Congress and the debt, but it is related to the economic conditions broadly and the expansion of monetary policy during that period. And I think we have to be careful and mindful of that as a central bank. Well, I would agree that no system is infallible, but it seems like we might get better information from the marketplace dealing with interest rates. Prices are very important in the economy and nobody's out there advocating wage and price controls. We've tried it and hopefully they never bring that back again, but in a way, aren't we dealing with a price control and you're looking for the price of money, the cost of money and I think you talk about that that the cost was too low and it causes a misallocation of resources, so how do you know what the right price is? Well, I agree, you need to have a disciplined monetary policy that has a range. I mean, our long-term growth over the decades have been about 3% real growth. Our policy should be mindful of that as we conduct monetary policy going forward. And when we do go to zero and leave it there for an extended period, in reaction to a crisis, that's one thing, if we leave it there on a continuing basis, we do increase the risk that we misprice credit and misallocate resources, yes. Well, it seems like it's a contest between competence in the market setting the price or the interest rates versus somebody dealing with monetary policy and some of us have come to the conclusion that we like the market to set that. We'd like to see maybe the retirees get more for their CDs. And I understand, but I mean, the market makes terrible mistakes as well. And the market is responsible because it gets, if you will, you fork in a direction, creates its own bubble around credit because we are a fractional reserve system, it crashes. The market itself isn't perfect either. It causes terrible. My time is up, but we're gonna have a second round and I wanna ask about the fractional reserve system. And now I yield by Mr. Lukenmaier. Thank you, Mr. Chairman. And welcome to my fellow Missourian. Thank you. Dr. Honig, it's good to have you. Thank you. Since 2008, the feds purchased several trillion dollars worth of U.S. securities, Treasury bills. And as we've seen over in Europe, over there, the countries in order to get their debt sold have had to go to some very austere measures, sometimes go back in two or three times to redo their plans. And every time their interest rates have gone up in order to be able to accommodate them. You know, we are being told by the credit markets, if we don't do something within the next couple of weeks here, we're going to have our securities downgraded. How does that affect the solvency of the Federal Reserve to have all of those securities that they're holding all be downgraded suddenly? Well, it depends on how the markets view this downgrade. If it's downgraded and it doesn't affect the market pricing on those securities, because they have confidence that the Congress of the United States will come to a correct solution on that. I don't think it'll have much effect at all on our solvency. If the Congress fails to act, then it will have a more lasting effect. But I assume the Congress will act. As a farmer examiner, I'm sure you, it'd be interesting to have the fit on the problem list, wouldn't it? Yeah. Along that line now, the same thing's happening with the rest of the banks in this country. If, for instance, we did get downgraded, suddenly now those banks, so your local community banks got a whole fistful of U.S. Treasuries and now they're being downgraded. And suddenly that affects their capital, affects their rating. How would you view that situation then? You're, again, as a farmer examiner, the calamity that would happen, try local community banks. Well, if there was a serious effect from the downgrade on the pricing of the bonds, to where there was capital loss in the bank, then of course it would have negative effects. Whether, I think the question is whether there would be a pricing effect. And I think that depends very much on the actions of the Congress. But it is an action that could happen on the part of the credit markets to where it could be an increase in risk that would have to be assumed there. The failure to act is an action. Okay, thank you. With regards to, you mentioned a while ago, well, let me get, Mike, time's running out here. Let me get to QE3. We had Chairman of Bank in here not too long ago and he wouldn't say anything about QE3, but since he's been here, he certainly has not denied thinking about QE3. And to me, this is a devastating situation. We've had a number of economists in here since he's been here, and every one of them I've asked the same question is what happens? Do you see interest rates going up this fall as soon as QE2 stops here? And everyone of them has said yes, unless you do a QE3, in which case you probably have inflation. Would you concur with that or do you have a different opinion on that? Well, first of all, I'm not a supporter of QE3. I wasn't a supporter of QE2. I think by ceasing QE2, I don't know that necessarily interest rates will go up significantly. It depends on a whole host of factors in terms of how the economy is doing. It's not just whether you stop QE2 over time. And I don't think we should manage, try and manage interest rates down. That's kind of the point of my testimony. I think there are consequences of doing that, that misallocate resources, and we have to be mindful of that. Well, obviously, I agree with that. I'm just going along that line of thought, one of the things that's the Fed's job is to look long term with regards to interest rates, with regards to unemployment. And to me, this would seem to fit into a QE2, QE3. I mean, where do we stop this? At some point, we have to get control of the, at some point, the economy's got to be resilient enough to stand on its own two feet. You got to wean them off this. I mean, if we're going to go out here, absorb all the debt that we're incurring, and every budget was Democrat, Republican, or whoever, we got debt out there. Everybody's agreeing we're going to have more debt. So we're going to have to have somebody purchase it, and if the Fed doesn't purchase it, somebody else is going to have to, and if we get our securities downgraded, I mean, risk is there, interest rates are going to necessarily go up. So long term, how do you manage those monies to see that you can minimize that? What would be your idea or solution? I think the mandate is a long term mandate, and we need to keep that in mind. And if we do, and if we pursue a policy that is long run oriented towards price stability, then the economy, I mean, a market economy adjusts on its own. The market is not particularly brilliant, but it is harsh. I mean, it corrects itself when there is an misallocation. And so that's why monetary policy has to look to the long run, provide sufficient liquidity, but not try and fine tune or manage the economy so that markets can in fact discipline themselves. So we should not be doing QE three, and this is my view. We should let, there's plenty of excess reserves out there in the order of $2 trillion. I think that's plenty. Now let the markets begin to heal, and let this market of ours allocate resources in our economy, and we should not try and fine tune that. I think when we do that, we inject instability as well more likely than we do stability. So we have to be very mindful of that. In the short run, we can really inject instability. We have to have a long run focus, and that is hard, I realize, but necessary. Thank you for your comments, and thank you for your indulgence, Mr. Chairman. I thank you, gentlemen. I recognize Mr. Lucas for five minutes. Thank you, Mr. Chairman, and doctors, you're well aware of course, I live in the great Kansas City District in Western Oklahoma, and about the time you were out doing all that hard work in the early 1980s, I was a senior Oklahoma State, and I'll always think of my father's lecture in the spring of 82, when I would occasionally go to land sales with my grandfather, keep your hands in your pockets and your mouth shut. That was wonderful advice in 1982. The reason I bring that up is we are now dealing with a set of circumstances here that you've discussed and touched around the edges, and in some ways is reminiscent of those early 1980s. You remember, and sometimes there's an occasion over you here that nothing has interconnected, that we're all little islands in the world. You remember when Penn Square Bank went down, an energy concentrated banking establishment, which then took down, directly or indirectly, what Continental Illinois in Chicago took down C1st in Seattle, took down two major historic long-term players, partly of that in my opinion, and you can offer yours, and I'd be pleased to hear it, as a result of perhaps misguided physical policy by Congress and perhaps misguided monetary policy by the Fed in that late 70s and early 80s period. But it had a devastating consequence, and it wasn't just Oklahoma that imploded, we sucked people under with us. So I guess that brings you to my real question and whatever comments you'd care to offer as my colleagues have alluded to with the Fed balance sheet at a little under three trillion dollars now, which by even the Texans definitions, Mr. Chairman, that's a lot of money. It took us 15 years to recover from the ag and energy sector hangover from credit that started in 1982. In my opinion, in my quadrant, it was 1997 before the ship righted itself. Three trillion dollars is a whole hell of a lot more credit than Penn Square was manipulating. When the right policy decisions are made, how long is it gonna take this credit hangover to clear? Well, let me first comment. I was on the discount window on Penn Square and was part of the group that recommended against lending against Penn Square. And I think it was the right decision there, although the consequences, as you said, were very harsh. And for the record, a few officers at Penn Square did go to the federal pen attention. They did. That was more than just a few bad decisions. Absolutely. Now to your question of the degree of liquidity, the amount of time it will take to bring the liquidity off our balance sheet to three trillion, I think is reasonably a period of years because we have brought this on. I think if you bring it out too sharply, you will shock the economy. And in our last minutes, the Open Market Committee talked about how they would go about doing it in terms of rates and no longer renewing their debt instruments, but even under those, it will take years. How many depends on how the economy does. It depends on what the roll off of these instruments, the speed of the roll off of these instruments and whether we choose to sell those. I don't know how long, other than I know it will take years. And there are risks to doing that. And that's my point about zero interest rates and creating what I call fragile equilibriums around this very liquid policy that when you finally do begin to move as a negative effect, a negative consequence on the economy, both nationally and regionally. And that does get my attention. Fair statement to say, doctor, that of course we will make at some point a decision here. We will at some point, I hope achieve a consensus. We have legitimate disagreements within the ranks of the house over what the right policy is. That's the nature of the body. But at some point, we will arrive at something. If we make the wrong decision, whatever decision we come to, the consequences is frightening as I suspect they are. Well, any time- Without commenting on any particular decision. Right, any time you make a wrong decision, there are usually negative consequences. And if you make the wrong decision, there will be negative consequences, whatever that is. And the financial markets are sophisticated enough that they will respond moment by moment with whatever policy decisions we make and will, as prudent money managers, use what I would define from an Oklahoma perspective as defensive policies if they need to. And that will ripple too. Well, the greater uncertainty you create, the more defensive the actions will be, that much we can be sure of. Thank you, Mr. President. Thank you, Mr. Chairman. I yield back the time that I have left. I thank the gentleman. We will go ahead and start a second round of questioning. If we look at the markets in the last couple of weeks in light of all the conversation about whether or not the debt limit will be raised, my estimation or my observation is that the markets aren't that worried. Would you agree with that or do you think the markets are showing problems or at least potential problems? Well, to this point, I think the markets are, at least strike me as having the view that there will be a solution. And as long as that view is in place, they will tend to stay calm if they lose that or if they begin to see more instability, more uncertainty around it and therefore actions than they would, as I said earlier, take more defensive actions. But right now, I think they have confidence in you, the Congress and the President to come to some kind of agreement. In monetary history, it's been said that when countries get to a certain level of debt, they have a lot of trouble and the debt eventually has to be liquidated. I personally think we're at that point, so there will be liquidation of debt. Matter of fact, free market individuals recognize that whether it's government debt or whether it's private debt, liquidation actually serves a purpose in order to get back to square one and have economic growth again. Now, when we liquidate debt, I believe I mentioned in my open statement, you can do it two different ways. You can just default, which great nations don't do that. Small nations will, but we're nowhere close. Do I believe that we will do that? I don't believe that for a minute, but I do worry about the other part. I worry about the liquidation of debt because if it is inevitable that the debt will be liquidated and what we do may be prolonging the agony, that's what I worry about, that instead of allowing the liquidation and rapidly getting back to square one, like we did in 1921, that we prolong this, such as Japan did and such as we did in the 30s, do you agree with that and do you have concerns that the liquidation will come in the form of inflation and if you wanna prevent that, what are your other options if we're not going to default on our payments, which of course I don't believe we will? First of all, I agree with you. I don't think great nations default on their debt. Second of all, I say that I agree with you also, we have leveraged our economy. As I mentioned in my remarks, the consumer has raised their debt to disposal income from 80 to 90% to 125. The federal government has raised its debt to in gross numbers, 100% of GDP, so we have increased our debt. Now, my concern is that, maybe back to your earlier point perhaps, but when you have that kind of debt, over time there is increased pressure on the central banks to help relieve that debt pressure by helping finance that debt. That puts pressure on the central bank. If they do that, it does risk inflationary outbreak and then you basically repay your debt in cheaper dollars. Isn't it? That's a risk, so how do you avoid that? The way you avoid that is you take either through the Congress, through special committees, whatever, and develop a long run plan that shows how we are going to, shows the American people how we're going to deal with our debt, federal and otherwise, but in the Congress federal debt and how the debt to GDP ratio is going to be brought back down. And if it does that in a systematic fashion, with strong binding points, then you will take care of the debt in a responsible way. But it seems to me like in that attempt, and the Fed came in and they propped up banks and corporations that they were the ones that had been benefited from this and now they have been able to get back on their feet again. At the same time, it really didn't help the people. The jobs didn't come back and the people lost their houses, so it seems like it's a failed policy to me. Well, your point, I understand your point, and my concern is that we have in this country allowed to develop two big to fail institutions. The largest financial institutions who bulked their assets became so important to the economy that anyone of them that failed would bring down and risk the economy. The market understood that and therefore gave them an advantage in terms of their position in the market, lower the cost of capital, allow them unfettered access, and when we allow that part, the safety net portion of that to get in with the high risk portion, the investment bank, it only increased that by factors. So we do need to address the issue of two big to fail. We do need to think about how we separate out the safety net from the high risk so that the economy can function under a market discipline or at least more under market discipline and we would all benefit from that. I think that's a very legitimate concern. My five minutes are up and I now yield to Mr. Green. Thank you, Mr. Chairman. I'll be honored to let you have 30 seconds of my five minutes if you need it. Let's talk for a moment about lowering the debt to GDP ratio. Do you agree that there's more than one way to do it? Of course. Do you agree that cutting is a way to do it? Well, you can grow your economy. Grow the economy. You could also increase revenue. Of course. I mean, that's up to the Congress how they understand. But I just want you to be on record as indicating that we have more ways to do it than one. And every choice has a consequence. Every choice has consequences and not making a choice at all has its consequences as well. That is a choice. Yes, sir. Now, let's move to another area. You talked about markets and the markets being calm. You do agree that the markets, generally speaking, don't like big surprises. When you give the market a big surprise, it has a reaction to a surprise. If you lead the market to believe that you're going in one direction and if you go in another direction, then the market responds. Correct. I think one of the best examples of this occurred when we had the $700 billion tarp vote and the market anticipated one thing and when the vote went another way, we saw the market spiral downward. You recall that, I'm sure. So you agree that markets don't, generally speaking, want to be shocked with surprises. Correct. Okay, if this is true, and you've indicated that the market currently believes that we're going to resolve this, and by the way, I pray that we will, but you agree that failure to bring about the resolution that the market anticipates will create a reaction in the market. Sure, it certainly will. If the market is thinking one thing and you do something else, there will be a reaction. One final statement. That also happens on Main Street. Yes, and Holm Street as well. As well. Yes. Let's go back now to your support for the zero to 0.25 target. I do not support it. You do not support it, but in 2008, you supported the cuts in the federal fund rate that pushed us to this target range, did you not? Well, I wasn't voting, but I'm sure I would have supported it, yes. Okay, and by the way, reasonable people can have opinions that differ even on the things that you supported, true? Absolutely. And Mr. Bernanke, whom I happen to think highly of, and I have a great deal of respect for, and he has opinions that are very well respected, and there are other members of the board with opinions, and you meet, and you confer, and you vote, and then you come to conclusions. Correct. So at the time, what you were trying to do was provide what I'm going to call a soft landing. Is that a fair statement that we didn't want the economy to just crash, we wanted it to land a little bit softer than if we had done nothing at all? Soft landing is a generous term. I think we did want to avoid a crash and depression, yes. Yes, a crash and a depression. And if you say that you wanted to avoid it, it says to me that you are of the opinion that had we not acted, there could have been a crash and a depression. Is that a factual? Counterfactual is always there, and that's a possibility, yes. And counterfactual is a hard to prove, right? But the reason you acted the way you did was because there was this concern, and I'm being kind by saying concern because there are a lot of other ways to connote what was happening, but there were these concerns that we were headed for something close to a crash or depression. And your actions, probably if you were to write a book, you'd say that your actions helped to avert this, would you not? If you're speaking of our movement to zero interest rates and the liquidity we provided? Yes, sir. Yes, sir. That liquidity was helpful. Yes. And just as it is difficult to prove the counterfactual as it relates to what you did, it's equally as difficult to prove it with reference to what Congress has done. Do you agree? I assume so, yes. Okay, all right. What I'm trying to do is establish this, sir. People of good will, and I consider you a person of good will, acted at a time of crisis. Correct. A time when it appeared as though we were about to go over the edge into an abyss, unlike we had many of us had seen in our lifetimes. And many of these things that we did, we won't be able to prove that we averted a great cataclysm, but we can surely conclude that what we did probably helped to avoid a rougher landing, a harder landing than we had. Right. And I want to thank you, Mr. Chairman. I'll yield back the balance of my time. Thank you. I thank you, gentlemen. I yield to Mr. Leukemeyer. Thank you, Mr. Chairman. Dr. Honig, I've been watching what's going on in Europe very carefully, and it's very concerning to me. And I know that in discussing this issue with a couple of other Fed members, board members, they don't seem to be quite as concerned about as I am. So maybe I'm an alarmist here, I don't know. But I certainly see a contagion there that could easily spread to this country, especially whenever you look at our banks having about 1.3 trillion dollars loan to the various governments invested in bonds and the various governments over there, as well as now Dodd-Frank tying all those big banks together with too big to fail. I mean, it looks like there's a lot of connectivity between all of these things here. And you look at a line of dominoes, it looks like we're in that line of dominoes. So I know that the Fed has a swap line with the European Central Bank and perhaps some other reserve banks over there as well. Just wondering what your view is of that situation. How concerned are you? Well, I'm concerned. You mean about the European situation? Yeah, European situation and how it will affect us or what kind of exposure we might have, our monetary policy, how it interacts. I mean, it's kind of a big question, but just the big parts of it. I understand your concern. I mean, the issues around those countries that keep coming up are also really around the banks, European banks, because they obviously have exposure there and that's a big part of the efforts they're trying to do to resolve this. And like the United States, as I read it, and I only know from what I read in the paper, they're working towards some kind of solution, resolution around that. But I think it proves to me, not only in the United States but internationally, that we have institutions that are too big to fail. And that's what this is really about. We've taken the market discipline away. We are now working with institutions globally that are extremely important to those economies, to our economy. To me, the whole issue continues to be around institutions that are so large that their own difficulties have effects, broad effects on the economy, and that makes them too big to fail. And therefore, forces, if you will, governments to come in and bail them out. And that's really what I think is going on in Europe and that's really what has, in our crisis, gone on in the United States. Until we change that formula, until we break those institutions up into those that are under the safety net and those that are allowed to engage in high-risk activities, we will have these crises periodically into the future. Not right away, perhaps, but in years to come. And the pitfall there is that we've got our taxpayer dollars at risk because we are backing these too big to fail, folks. When you put a safety net over them and put the governments implied or explicit guarantee, the taxpayers, the backstop, yes. In your position, and you're an economist and having dealt with all of the financial things over the last several years, what do you see as the biggest concern to our economy today? Whether it's international problems here we just discussed or oil prices or our monetary policy or wars. What do you see as the biggest concern and how we can go to it? I mean, for the financial aspect. Well, that's a pretty important question. Number one, I think that as far as our financial system goes, I continue to believe the too big to fail is an area that needs further, to be further addressed in these institutions, need to have their risk better divided between what's under the safety net and what's not. Number two, I think that the fiscal, the budget crisis in the United States is important because it's drawing all of our attention into that. And yet the economy is in difficulty and we should be thinking about our policies that do we want to see if we can bring manufacturing back on greater manufacturing on shore. In 1960, 25% of our GDP was contributed by manufacturing. Today it's 12.5%. We have 14 million people out of work. So what is our attitude towards manufacturing? What is our attitude towards creating businesses that create things then that hire people? By not being able to pay attention to that in the Congress and elsewhere, I think we are handicapping ourselves in an international global competitive market and we need to pay more attention to it. So we have a brighter future. I think that's essential. Appreciate your comments. My time is up. Thank you again for visiting with us today. I always enjoy discussing things with you. I really appreciate your perspective and all your hard work as well. Thank you again for your service, sir. Thank you, Congressman. Thank you, Mr. Chairman. I think the chairman, I have another additional question. If you care, just stick around, you may. But I'm not gonna let you go so easy. I have you here, so I want to, I need to find some answers. But I am very glad you're here and willing to take our questions. But when your introductory statement, you mentioned that one of the responsibilities of the Federal Reserve was to have maximum employment, which sounds like a good idea, and stable prices. And I would look around and I would say, results aren't all that good. When you look at stable prices of housing, you even brought up the subject of stable prices, unstable prices in farmland, that quite possibly could be a bubble. I would think that if you looked at bonds in prices, they are very unstable. And who knows where that is going. If the market overrides, which I believe is possible, markets are very, very powerful. I know the Fed's very powerful, but also no markets are very powerful. But also in your statement, I want to get back to it. We talked a little bit about this, and you said I have several concerns with zero rates. First, a guarantee of zero rates affect the allocation of resources. To me, I think is very key and very important because it really brings up the subject that the free market economists are very attuned to. And Mises in his human action talks about this, is the misallocations and the malinvestment, excessive debt, money going into the wrong sectors, like farmland maybe, or NASDAQ bubbles and houses. But he took that and carried it a much further step. It seems like you have part of that philosophy, but not the full philosophy, but you're, I'm sure, aware of what Mises says about the Austrian theory of the business cycle. How do you look at that? Can you say something favorable about his approach to it, or can you draw a sharp line where interest rates are harmful and know how to divide the two? And what is your opinion of the Austrian business cycle theory? Well, I've read Human Action. I have a lot of respect for Von Mises, and I have a lot of respect for the Austrian school of thinking. I think it has value. I understand that when you overinvest, when you leave things artificially low and you overinvest, you create a correction by doing that. There's an action with that. My view is that's why central banks have to be mindful. I mean, no matter what the system is, if you have markets and capitalism, you're gonna have cycles and you're gonna have crises. And what you want the central bank to do is address the crisis and provide, over a long period of time, a base liquidity of money that allows your economy to grow. When you move beyond that, when you find the central bank focusing on short term issues, trying to manage the economy, trying to fine tune it, then you create, if you will, impulses of instability because you're trying to take care of short run issues instead of looking to the long run. That's why when I say the duty of a central banker is to think long run. And that I think I'm in agreement with the Austrian school, but I do think there is a role for central banks. I certainly agree with your point. Once they overextend, they're into central economic planning, except many of them accept the notion that you get into central economic planning earlier than that at the initial stages of believing that you can know what the interest rate should be. Maybe you can give me a quick comment on this. Do you think the problems in the world today, try to put that in perspective. I think it's a very big problem because I don't think we've faced it quite the same way because we have a fiat dollar standard and the issue is of the reserve currency of the world. Do you think that has had an effect on what we're facing? The fact that we're issuing the reserve currency in the world and it's much different than anything we faced before? What I think is that the fact that where the reserve currency is a consequence of decades of very good economic policy, the fact that we've had an economy that has grown come very important to the world and therefore its currency has become very important. I think that's a consequence. It's something you, as someone else has said, you've earned. With that is carried a responsibility, a responsibility to look to long-run policy. And to your point, I mean, if you have a gold standard, that is a legitimate alternative monetary base for your economy, but it does not eliminate crisis. There's gold hoarding, there's positioning, there's mercantile practices, you will have crises. So it doesn't matter if it's Congress, it doesn't matter if it's the central bank, it doesn't matter what standard it is. Good policy leads to good outcome. Bad policy leads to bad outcomes. That's what you have to keep in mind. See, I'd question the word whether we earned it or not. In some ways I think it was defaulted because we were the standard, at least we pretended to be a gold reserve standard, even though we weren't allowed to own gold, it was a international gold standard and then the confidence continued surprisingly to some people so that that's just a matter of an understanding or semantics about whether it was earned or we defaulted. But I have one more question because I've been interested in the monetary issues, I'm delighted that you're here and so willing to visit with us, but last week I learned that gold was not money, so I've been able to put that out of my mind. So gold is not money, so I'm still trying to figure out what money is and I've asked these questions a lot of times, I've asked the Federal Reserve Board Chairman over the years and if I ask about dollar policy, they would say, well, we're not in charge of dollar policy, they're in charge of creating all this money and regulating interest rate, but they're not in charge of the dollar. Secretary of Treasury does that, but the Secretary of the Treasury doesn't give me any straight answers, but what I need to know from you to further my education is tell me what a dollar is and where can I find the definition in our code? Well, the denomination is, I think the title was given just about the founding of our country, it was based on a gold standard at that time, but money is, as you know, medium exchange deferred means of payment and store value and as long as the public and the world understands that the dollar that is produced by the Central Bank of the United States, the base money, and then credit goes on beyond that, it is money, as long as they take it as a medium exchange deferred payment and store value and that's lost then it will no longer be money. But it's a note, it's a promise to pay, it actually, you're right about it. But it fills the three functions of money. Now, gold can do the same thing and if Congress designated that the gold was a medium exchange, then it's- This is why I'm looking for the code because the code, when I understand it, actually in the early years, they wrote a dollar into the Constitution like they would write a yard because everybody knew what it was, they didn't even define it, it was so well known, it was 371 grains of silver, but that's never been changed the best I can tell and all of a sudden now we have a Federal Reserve note, a promise to pay nothing, is now the dollar standard and we can create them at will out of thin air and then sometimes people wonder why we have a shaky, rocky economy, but I'll keep looking for the definition of a dollar, but best I can tell, we've never said a dollar is a Federal Reserve note and the dollar under the code which still says it's 371 grains of silver, yield to Mr. Leukemaier. I just have one follow-up question on something the Chairman asked a minute ago with regards to the world currency because I think one of the consequences of us not doing something to resolve our debt crisis here and then be downgraded, it would seem to me to be a step down the path toward allowing ourselves to be no longer the world's reserve currency. With China sitting over in the sidelines watching us twiddle our thumbs and waiting for an opportunity to get into game, this is an opportunity. We're stumbling here and allowing to do that. What would be your thoughts on that comment? Well I think it's, I do think it's a serious matter. I think the US currency, the dollar is the reserve currency of the world and remains so for some time and part of it is what's your alternatives? I mean you always have to ask the question of the United States for all of our issues and all the debate going on right now is still has the deepest markets, is a market economy, has all the advantages, it has open capital markets, China doesn't have that, Europe has its issues. So we still are the dominant economy. However, there's nothing guaranteed about that. I mean that can change based upon the policies we choose going forward from here both from a fiscal side and from a monetary side and from basically how we choose to have our economy operate in terms of the private sector and markets, those will all define the future of us as an economy and therefore the future of us as a nation with as a reserve currency. It will be what we choose to do. You just made the case from the standpoint that you almost by default, we are the real reserve currency because China doesn't have all those ducks in a row yet to be that currency. Europe's got its own set of problems and so you look for the safest harbor, you look for the strongest economy, we're still there. But if we keep twiddling our thumbs here, it could be endangered from the standpoint of the world, so they're gonna say, well those guys can't get their act together and their economy's done well. They don't have a manufacturing base anymore and they're gonna import almost all the oil, which means they're gonna be at mercy of the oil companies and all the cartels around the world and all of a sudden our economy is looked at as kind of a shaky thing versus a very stable thing. And now, you know, you have these other folks come running in there and fill the void. And I, to me, this debt debate, one of the things, one of the side lights and one of the side consequences is that we're going down this road that nobody's thinking about of allowing China to get their foot in the door on the world currency side. Now it's not gonna happen today or tomorrow but I've heard some people project that, you know, five or 10 years if we don't get our fiscal house in order, by that time, they will be in a position economically where they've resolved a lot of the issues that you've talked about and they may be knocking on the door. So what do you see in the horizon for that? I think that the debates that are going on right now are about the long run future of this country. How we choose to deal with our debt, how we choose to deal with our economy going forward, those are the debates that are in place right now. And my point is a monetary policy cannot manage the short run. It has to have a long run focus also. And the Congress and how we choose to have our markets operate are choices that lie ahead of us. And if we don't choose well, I think we, in a generation, I think the answer to that question could be different. So we, it's in our power to change this or to keep us on the right path but you have to choose to do it. And these debates are about the long run. There's no question about it. Well, I certainly appreciate your common sense and intellectual approach to all of our problems. Dr. Honigan, I hope that you stay engaged in some aspect of monetary and fiscal and economic policy here. You're too much of a prize jewel to walk away from this. So thank you again for your service. Thank you, Mr. Chairman. Thank you very much. We're about to close, but I do have one more question I think you can answer rather quickly. What would be the ramifications if they stripped away the voting rights of the regional Fed presidents from the FOMC? Well, the ramifications would be you'd lose an important set of voices in the Federal Open Market Committee. And I think it would be a mistake. I mean, right now in my region, as I deal with our board, agriculture from, rancher from Wyoming, bookseller in Oklahoma, labor leader in Omaha, that's all input that comes into the process. And I think you would lose that voice and you would lose that input. And you can say make them advisors, but let me just tell you, voting and advising are two different things and they're not even close to one another. I would just say, since you've asked, I mean, I've been said, it's not democratic, it's not part of the political process. And my answer has been the selection of my successor will be a process that relies on our board who represent, like I said, a grain dealer in Kansas City, a entrepreneur in Denver, a labor leader, a bookseller, a manufacturer, and a rancher from all over our region, six of our seven states. And they very carefully go through a search and then it has to be approved by the Board of Governor, the political pointeers. So to me, that's a very democratic process and it is in contrast to, if you select the secretary of treasury who happened to, if you're a Democrat, you select a former chairman of Goldman Sachs and you're Republican and you select a chairman from Goldman Sachs, that's political, but I don't know that it's any more democratic than our process and I don't recommend it. I thank you. I thank you for being here. This hearing is now adjourned. Thank you. Thank you.