and they are professors and economic leaders in their country and they are part of a state department leadership program on economics so i'm delighted that they are joining us here today today's report from the bureau back and mike analysis on third quarter gross domestic product provides a welcome evidence that the economy is moving from recession to recovery when the president took office in january our economy was on the brink of an economic disaster and we were seven hundred thousand jobs a month there was no end in sight to the recession that started in december two thousand and seven after having fallen for an unprecedented four straight quarters concrete evidence of the wisdom of the recovery act and the positive effect it has had on the economy in just a short month last week dr christina romer the president's chair of the council of economic advisers presented us with compelling evidence that the economy is rebounding largely because of the recovery act she testified that the recovery act added between four percentage points to economic growth in the third quarter far beyond what the opponents of the recovery act thought possible another piece of welcome news is that personal consumption grew by three point four percent in the third quarter largely due to actions taken by congress and the administration we are finally seeing signs that consumers are spending more which could spur businesses to hire more workers demand for their goods and services i expect that legislation that i worked tirelessly on to in the most abusive am optimistic that it will pass in the senate in the long term jobless those who have been unemployed for six months or more in the future even when the economy recovers workers who have been unemployed for a the size of the month stimulus is minor compared to the injection by the fed in last week's honest admission by the chairwoman of the president's council of economic advisors that the stimulus will likely be contributing little to further economic recently warned to keep it in perspective while hope today's report signals the economy has hit bottom but there is a real possibility we could bounce along the bottom for some time looking forward a sustainable recovery will only occur if the private sector not the government is the driver of economic growth unfortunately we hear reports of more and more american businesses who are delaying investment decisions in the jobs that go with it due to  washington's actions on health care burdensome new regulations in proposed higher taxes on income energy and investment concerns arise over the growing debt in the excessive influence of labor unions on the decisions and policies of this white house and amid this impulse of government centric environment many c e o s and small business owners will hesitate to risk major sums of precious capital on projects who returns could be limited or no fire all together by the unpredictable political winds blowing through washington on any given day it's tough enough to protect the marketplace the marketplace and washington is overwhelmed if we want economy economic recovery it's time to let the market work in addition restoring the primacy of the free market here at home a sizable and proven opportunity for economic recovery lies in selling american goods and services abroad i would encourage the obama administration in congress to stop ignoring the one fifth the american workforce whose jobs are tied directly to trade instead ours democrats and republicans alike to become strong advocates for opening new markets abroad and giving american companies more cars a chance to compete and win on a level playing field throughout the world good start is with potential new customers in colombia panama and south korea america is falling behind in the models of artistic or literary originals in the design of new products and services investments in these non technical innovations can also generate enormous income and while interning the international statistics i would also like to hear what your b is yelling at us about our fiscal policies saying that yes we need to do some monetary wise although i think it's time we start looking at raising interest rates as the australians have done in several other countries are looking at as a way of stabilizing our currency what the fed has done has been good overall but it's time to start sending some signals in the marketplace to the dollar and it will be interesting to hear people coming up on that and then also i'm delighted to see the positive economic growth after having so many quarters of negative growth but when you parse it a good portion of this is auto sales and i was supportive of the cash for clunkers program because i thought this is an economic stimulus not a government stimulus is what i thought we needed to have that was also three billion instead of the seven hundred eighty billion that was in it and it seems to me we ought to look at ways to pull back on the things that stimulate the government and support the things that stimulate the economy as we move forward to get our fiscal policy under control and to stimulate the thing we want rather than the thing we can't afford and i would hope we could talk some as we move move forward on this how we can get our spending down and get our economic activity up which is what we've got to do at the end of the day delighted to be here look forward to some of the interactions in the testimony have been taken secondary only to the collapse of nine hundred twenty nine it's very close to being a deep recession so what is being done is very very important no question about it that the economic investment and recover act is entirely significant and what has been taking place the economic conditions that we're experiencing would be far worse if i had not been for that so called stimulus bill and the money that is being put out into the economy addressing the  needs which have not been addressed adequately for decades and even though a fraction of that the stimulus bill has only been out there roughly about twenty five percent maybe it's up to thirty percent now the movement of that bill forward is going to continue to have significant positive effects some of us believe that that stimulus bill is only about half the size that it ought to be we want to be a lot more stimulation going on in the context of this economy deal with the internal need and the main focus of attention has to be the production of jobs because that is the working people of this country that determine the quality of the economy the gross domestic product is based upon to a large extent on the activities of working americans blue and white collar working americans so we're going to continue to do everything that we can to stimulate this economic circumstance get back to normal and do so in the context of creating as many jobs as possible and in the context of that also the efforts that are being put forward now to stimulate new technology to technology go that is going to drive this country toward energy independence all of these things are critically important in this government has to be very carefully focused on the responsibilities that it has to upgrade thank you very much i'd like to introduce dr langer he is the director of the bureau of economic analysis and prior to becoming director in one thousand nine hundred five he served in a number of other capacities that including deputy director and the associate director for international economics while at the dr land of hill has led a number of pioneering statistical and management initiatives that have been recognized nationally and internationally prior to his arrival in dr land itself served as chief of staff for the president's council of economic advisors he has authored numerous professional articles and has received m national and international awards for his work including the president distinguished executive award he holds a ph d in economics from the university of maryland welcome and we look forward to your testimony in the second quarter the rate of decline in real g d p moderating zero point seven percent following a sharp six point four percent decrease in the first quarter of this year g d p s declined five out of the six changes in the third quarter consumer spending and a door investment by business residential investment exports and government spending already these increases were partly offset by rising import the price index for gross domestic purchases which is the broadest measure inflation confronted by consumers businesses in government increased one point six percent following an increase of zero point five percent in the second after falling for the first two quarters of this year energy prices rose sharply in the third quarter excluding food and energy prices inflation actually slow motor vehicles which open all the components of g d p from consumer spending to ending tori consumer spending which accounts for over two thirds of g d p increased three point four percent in the third quarter following a decrease of one percent in the second motor vehicle purchases by the cash for clunkers rebate from july a in business and the toy investment provided a positive contribution change as business is down their inventories at a slower rate than they had in the second and first quarters therefore more sales were goods and services produced in the third quarter the out of inventory real exports of goods and services increased fifteen percent in the quarter this is the first increase in real exports in five quarters real imports of goods and services registered didn't even larger increase exports rising sixteen percent in the quarter the rise in imports partly reflects the strengthening of g d p but spending on imports is subtracted in the computation of g d p because they do not represent us production turn to spending on goods and services by the federal government increased eight percent in the third quarter slowing from an increase of alive and percent in the second the slowdown in the rate of federal spending was accounted for by defense spending spending by state and local governments fell one percent the third quarter in contrast to any increase of four percent in the second turning to the american house real disposable personal income as personal income personal taxes adjusted for inflation was boosted in the second quarter by provisions of the american recovery and reinvestment act of two thousand coming off the tax reductions and government benefits included in the recovery act real disposable personal income declined in the third quarter after increasing the second third quarter personal saving rate was three point three percent compared to four point nine percent in the second second i would now be glad to answer any questions that you may have thank you very much for your testimony can you measure the direct impact of the recovery act on the third quarter of g some local governments had less sharp cuts than they otherwise would have but to know what the impact of that was require some kind of economic model which the second can tell you about in terms of what the effect would be to some of our jobs to tell you what happened and the economists job is to tell you why would you be able to point out how much of the increase in the g d p and when you're when you're telling us what happened how much of it is due to increases in consumer spending or government spending is there any way you can track that we're able to tell you for example that consumer spending  had residential investment which is subtracted half a percentage point growth in the second quarter added a half a percentage point to growth in the third quarter and that's as i said my tests on the first time we've seen that ha of what is driving at a certain factors include the dollar growth in other countries the growth rate in particular of domestic demand that is the financial needs of foreign nations factor into those that net imports subtracted from g d p this quarter can you tell us if this is due to the increase in oil prices or did consumers just consume more  fourth quarter a lot of that has been a function of households very large losses where they've had over time that has had a significant impact on households because they had previously  year or so ago in that much of the growth are one time advance or federal government spending that can't be sustained in the job creation area there's been a lot of conjecture in promotion about the stimulus but the social  today said that after careful review and looking at the thirty thousand jobs the white house has claimed from contracting through the stimulus that those job numbers are significantly overstated  the a p reports that in some cases the job numbers were ten times higher than the actual jobs created in other cases one job was counted four times and in the case  community college there the two hundred eighty jobs that were claimed by the white house actually none came from the stimulus from the data you have can you substantiate the claim that the obama stimulus bill has trader government spending but when you look at personal income the driver future demand personal income is down current dollar disposable income is down real disposable income is down three point four percent looking forward can you build a sustainable recovery based on onetime event like cash for clunkers or temporary government spending or are we going  in terms of their circumstances it's also heartening that the businesses has slowed the rate of running down the rate at which they are running down during the day because we heard last week from dr romer about the impact of the recovery act when the economy and her calculations about how much of the change in g d p can be appor moment ago you talked about the fact that the i guess you were talking about the cash for clunkers program you seem to be able to do some relationship effect in like july in august we saw a very sharp rise in motor vehicle sales and i can tell you with precision how much motor vehicles contributed to the rise in consumer spending and how much of the overall contribution in motor vehicles rearrangement of demand over time and and from this report you can see any way that we can determine whether these files and numbers are an anomaly or a true  diocese what what happens there is no more cash for clunkers have we i mean the equivalent of pouring red bull into the economy and now we're going to have to come down from that caffeinated sugar high that  question and i think you've got it in your testimony that the savings rate during the downturn took a markedly different from from where it had been before with when you look at something like a cash for clunkers infusion into the economy what what's what's ahead what's next as far as the decisions that people are likely to make as far as that accumulated money they have been in that savings cash for clunkers obviously was a way to get them to sort of shake them loose and bring them back in the marketplace you also have to worry about people who perhaps got back into the marketplace who should have gotten back into the marketplace and did we create a subprime loan problem within the within the automotive industry that will manifest itself in six eight twelve months time whatever those notes be come due and people have not gotten employment or not able to regards to the iraq war we had kind of the competing visions long hard slog last throes of the insurgency so i heard on one of the news shows this morning that we should be playing happy days are here again and someone else said well maybe those green shoots are just the weeds growing in the parking lot that has no cars in it so what is your concept of the end of the recession that the barrel of economic analysis what does economic recovery really mean to your  so if we see even that one point seven percent growth of g d p which could be sustained without cash for clunkers then as a technical matter the recession is over even though ten percent of our population or seventeen percent of our population depending  months that was an affirmative answer thank you i'd like to thank you very much for your your work and for your testimony today and i would now like to introduce our second panel and ask them to come forward first  karen is vice president and co director of the economic studies program and the robert kurson your fellow at the brookings institution where she focuses on macroeconomic and household finance issues  she joined the brookings institution in september two thousand and nine after seventeen years at the federal reserve board she also served as a senior economist at the white house council of economic advisors she has published research papers and they c co founder of baseline scenario dot com a widely cited website on the global economy and a member of the congressional budget office's panel of economic advisers m johnson appears regularly on n p r s planet money podcast and the economist house calls and is a weekly contributor to the new york times dot coms a kind of mix is a very active in many ways professor johnson is an expert on financial and economic crisis as an academic and policy roles and with the private sector over the past twenty years he's worked on severely stressed economic and financial situations consulting activities moody's economy dot com a division of moody's provides economic research and consulting services to businesses governments and other institutions is research interesting good macro economic financial regional economic recent areas of research and determinants of mortgage foreclosure and personal bankruptcy an analysis of the economic impact of various tax and government spending policy and assessment of the appropriate policy response to bubbles in asset markets dr zandi received at the university of pennsylvania welcome dr kevin the director of economic polic due many commercial loan defaults that's of course going to hurt commercial rules commercial construction but it also hurts many of the small banks that have very large commercial loan folios and that's another reason why they're not extending credit small business which is key to the job machine and then finally state local government they did receive help it's been very helpful very important as i mentioned but their fiscal year twenty eleven budgets are going to be just as bad tax revenues continue to plummet if they don't get more help they've got a they've got a very large problem they're going to have to cut programs jobs and raise taxes beginning this time next year so in my view i think will avoid falling back into recession for the risks of recession are uncomfortable hi and if we fall back into recession that would be particularly worrisome it's not going to be easy to get out of it we've got a zero percent interest rate and we got a one point four join dollar deficit we just cannot go back into recession finally point number three what policymakers do about this let me say two things first i think at the very least you should extend a number of the provisions in the are a that are expiring this year that would include the eight unemployed workers that is a slam dunk lending some provisions and that made it a little bit easier will expire at the end of this year day should be extended and at the s b a program should be adjusted a couple things you could do to make it much more effective and finally the second thing i would do is if we got into next year and the economy is not engaging if we don't get more saying when view is that dr johnson expressed in the counties not engaging i would consider a number of different things certainly aid to state local government very very important work share programs i would thank you so much we've been called up to vote on three different items so quickly like to ask since many of you noted that job creation is a major challenge now in our in our economy and in our country on that front we got some reasonably good news investment spending in the third quarter in equipment and software turned positive after just completely cratering late last year so that would suggest that we're moving in the right direction but the increases are very small and also suggestive of relatively modest hiring over but if i were going to pick a component of g d p to focus on to gauge the direction of hiring it would be equipment and software  congress do to spur that i would i would suggest two things i'm sorry two things one is i would expand the provide more incentive to the s b a program because this is a way to get credit to small businesses that are key to the job engine just  establishment that employs fewer than twenty employees account for twenty five percent of all of the jobs in our economy but they count for forty percent of all the job creation in the last second increase the loan guarantee in the current longer and ninety percent i would raise that to ninety five or ninety seven and a half percent temporarily and then third and most importantly there is an interest rate cap on  the on the rate they can that small business owners can provide it's two hundred twenty five basis points over prime that's that means that the current maximum loan rate is six percent or below no one's going to loan at six percent in this credit environment you should increase that you should double it in your testimony because you say things it looks like to me that i've been thinking for some period of time and i want to ask if i'm getting getting this right the chinese exchange rate has been  time but in fact beginning in two thousand and five the chinese started to allow their currency to pretty modest relative to the balance three to five percent every year  and i think that would be the most appropriate path going forward if they stick to that i think that's what we should we should plan for johnson i want to ask you on a separate issue here you put in your testimony that the largest banks proposal that we're working with now to get in statutory form to allow a process put in place to to move away from the too big to fail policy have you looked at any of the outlines what he or others have put also very important for policymakers to have another track for policy considering things to do about the long term fiscal situation because if you're able to credibly address that through these kinds of suggestions and that will buy you more freedom and latitude people maybe don't look at it that way but a lot more tax on the consumption side and a production particularly going forward in trying to be a more productive country and more export oriented and less maybe consumption oriented with that i want to conclude on this one question is the dollar is been declining is it likely to decline over the next year or so relative to other major currencies is that  would understand very appreciative of you being here and thanks for entertaining the dialogue and discussion we're in recess firms and that they would have create they would but they would have created the jobs anyway and others believe that because job creation is such a challenge right now that these worries are misplaced and i'd like to ask all of you whether you think that an employer tax credit is a good idea yes or no and then also if there are other measures that congress should consider to bolster job creation in both the short term and long term i know dr zandi you testified to that earlier but if we could just get a sense whether you think the employer tax credit is a good idea yes or no you've already testified that you think the bad idea dr johnson do you think it's a good idea or a bad idea to focus on creating jobs we do that we're looking at doing it again possibly but how do we create jobs we can't continue to just be subsidizing jobs we have to be creating jobs in our economy any ideas of how to create jobs and help us with our economic growth job opening there are now six applicants and you read stories about a job opening being posted in five hundred people showing up and what i'm hearing from my constituency some of whom are incredibly well educated with higher degrees in many different areas and the jobs are not there so we have americans work hard they're very dedicated people and they work hard at the jobs where they're i believe that our employment our unemployment number would not even exist people would take those  jobs so it seems to me that the biggest challenge that we have is how do we create jobs and you can have a jobs program that tailors for medical services or whatever but if the jobs fifteen billion dollars first come first serve only to those businesses that can show that they expanded their wage and salary bill compared to what was the year before you get the credit i would i would think that would jump start creation quickly  and the federal level then there are a lot of opportunities right now for making businesses more optimistic about than they are right now if we continue to be the place on earth other than pockets and then i don't know why people would want to build a ways the subprime mortgage crisis and what if you have other ideas of how we could get this segment of our economy working in a way that would move us forward so why don't we start with  broader thing that we consider doing is this goes to the foreclosure crisis the president's loan modification plan is not working well there's not significant amount of take up on the plan largely because it's not significantly reducing the probability of default the plan provides incentives to the mortgage payments but unfortunately most of these homeowners are so deeply underwater that if anything goes wrong in their financial changed or at least adjusted to principal write down and i think there will be a money there to do it because person is allocated money from the tarp for the loan modification plan he's not going to get t you have any other ideas of ways to to expand access to credit which even various stablished profit making businesses are telling me they're having a terrible time any comments on how to expand access to credit grave challenge that we have right now that some of you mentioned was the commercial real estate industry and it is staggering a lot of commercial real estate have told me that they are carrying buildings that are paying for themselves so that they have the money coming in to sustain their business yet they have mortgages that are coming due in the next two years and the banks are calling them and it is next to impossible to get a loan on commercial real estate now i am told you cannot you can have a building worth eighty billion dollars or eighty million dollars and i can give you a loan on it and i've heard it over and over again so they  dried up the credit market for commercial real estate yet it seems to me if we have buildings that are carrying themselves should we have a temporary program that just kicks the can down the street a while and and says buildings that are carrying themselves that you asked the banks for by government require that the banks not call these blue loans or any other idea that you have on the commercial real estate side and again dr zandi you pointed out that most of these commercial loans are with small and regional banks so it's going to be a big huge blow to the banks in hearings that we've had this committee and others the treasury department has testified that they're not willing to look at any program to help commercial banks basics challenges because of the commercial real estate and it seems to me if we could figure out some way to just soften the blow it would help not only the banking system but certainly the real estate industry overall at some time over the course of the next few years unless appropriate action is taken to prevent that situation from getting worse the main cause of the economic recession that we've been experiencing was the