a loving, caring, committed and stable home, protected equally under the law. and it is not right, and it is not just that the children of gay couples should have lesser protections than the children of other families in our state. nor would it be right to force religious institutions to conduct marriages that conflict with their own religious beliefs and teachings. in maryland, we already recognize civil marriages performed in other states and just over the border in the district of colombia. and it is time to join with clergy, faith-based organizations, civil rights organizations, community leaders, windy individuals

across our state to pass a civil marriage law that protects religious freedom and civil marriage rights equally under the law. from today's state of the state address, and the comments of governor martin o'malley as he delivered his comments on tox, infrastructure, jobs and economy but towards the end of the speech talked about an issue that's getting a lot of attention in the greater washington/baltimore area. gay marriage and the rights of gays and lesbians in the state of maryland. tomorrow on c-span's "washington journal" chris van holland will join us to talk about the outlook director on the economy and, a projected $1 trillion deficit this year and we'll talk to robert jones, the founder and ceo of public religion research institute to talk about where these

institutes are concentrated. how they vote and the impact they have in presidential and local politics. some of the issues tomorrow morning on the washington journal heard live here at 7:00 a.m. eastern time and 4:00 for those of you on the west coast. thanks for joining us. i hope you enjoy the rest of your evening. negotiations for a second bailout package for greece and the senate panel looks at the economic outlook for europe. and then we talk with congressman tim ryan of ohio about u.s. manufacturing. and later, house and senate republicans talk to reporters about the federal budget. >> for the last 60 years, every

president since dwight eisenhower has attended the national prayer breakfast and tomorrow, president obama will be on hand at this year's prayer breakfast. watch live coverage at 8:00 a.m. eastern on c-span2. u.s. officials continued to monitor europe's economy and debt crisis. up next, the senate budget committee looks at the economic outlook for the eurozone and we'll hear from economists and financial analysts at this hearing chaired by north dakota senator kent conrad. >> i want to welcome everyone to the senate budget hearing and today's focus is the outlook on eurozone and its impact on the

u.s. and global economy. we have three really distinguished witnesses with us this morning and i want to thank them each for being here. first, we have dr. simon johnson, sr. fellow at peterson institute and proif he tr are sore of entrepreneurship at myth sloan school of management. dr. johnson has testified before this committee on several occasions and we welcome him back this morning. we also have dr. freedbergston, director of the the peterson institute. he recently announced after 13 years of ably leading the peterson institute, he steps down as director and focusing more o'of his time on research and writing and i commend him for his year of leading at the institute and wish him well in his further endeavors ppd he's testified many times before the budget committee as well. we also have with us this morning, dr. adam larrick,

visiting scholar and someone deeply knowledgeable on european affairs having spent the last two years there. we look forward very much to your testimony and welcome you to the senate budgdget committe as well. i'd like to begin by briefly reviewing the situation as i see it in europe. to be clear, what is happening in europe has ram cases across the globe certainly including the united states. here's the front page story in the washington post last week. imf fears european crisis poses risk of major recession. the article highlights the international monetary fund's concern that the turmoil in europe could have serious consequences for the global economy. yesterday, we saw reports that european leaders had agreed to

new measures to dads the debt concerns in their -- to address the debt concerns in their countries. "the new york times" headline on the agreement. european leaders agree to they measures to enforce discipline. i'd like to hear on this agreement and whether it's the right answer for europe at this moment. most economists believe the eurozone is already in recession. we can see the blue chip forecast shows eurozone economic growth falling from anemic 1.6% in 2011 to a negative .004 in 2012. and at the same time nagses with saddled with large and growing debts which impact their ability to respond to the downturn. greece and italy face debts well above 100% of gdp. our own circumstance, we now face a gross debt of more than

100 of our gdp. the threat to the u.s. economy is clear. here's how economists the former vice chairman of the federal reserve described the situation in his testimony before the budget committee last week. my rough outlook for u.s. gdp growth in calendar year 2012, is about 2.5%. the biggest threat to the economy is financial conthey gon from europe, a blow up that looks like lehman brothers. i think most, if not all of that punitive 2 toin 5% growth could just evaporate in a worldwide recession. i hope that people are listening. if europe implodes, the risk to our economy is serious. we need to remember that almost one quarter of u.s. exports go to our european trading partners so what happens to the european

economy could have a very real impact on u.s. manufacturers and u.s. workers. with that, we'll turn to senator johnson who is filling in for senator sessions this morning for his opening remarks and then we'll turn to our witnesses for their testimony and, again, i want to thank senator johnson for filling in for senator sessions this morning. i just say to colleagues, there are many competing meetings of other committees this morning, including mark-ups in some, which means that colleagues who would like to be here simply cannot be here and participate in the work of other committees on which they serve so, we understand that this is a meeting in which there are many competing priorities for members of this committee. senator johnson. >> thank you and only i'm here because this is my top priority and i think this is certainly the greatest threat that faces

our nation is our debt and deficit issues and all always tied into our need to really achieve an economic growth and that's, what the threat of europe poses to the u.s., how does that affect our economic growth. i want to thank you for your comments in our last budget meeting were you indicated your desire to work towards passing a budget resolution out of the committee and one to hopefully reduce the deficit by as much as 5.5 trillion. that's great goal. one that i certainly want to work with you to try to achieve. and i think one of the things we'll have to do to achieve that goal is be mindful of our obligations under the budget act and from 1947 and be mindful of those dates. the president was in terms of following that law, presented the budget on the first monday in february and probably miss that by a week. okay? let's not let any other deadlines slip.

this budget, this committee has an obligation to pass a resolution by april 1st and the senate should be acting on a concurrent budget by april 15th. we need to hold our feet to the fire to get that done because i think it's the minimum amount of -- the minimum requirement that the american people should expect from the senate is actually pass a budget so they understand what the plan is so they can see it on a piece of paper and know the direction the senate will take. >> if i could interrupt the senator on that point. one unknown that we still have to deal with is when we'll have cbo's re-estimate. they haven't given us an answer on that question so that's the one unknown that is out there. i agree with you entirely. i'd like to get this done as soon as possible. obviously, we have a hearing

scheduled to conclude was important because we're hearing from the head of o&b, secretary of defense, secretary of treasury, secretary of defense, secretary of transportation, but the one thing that's out there that's an unknown for us as a committee, is when cbo will provide their re-estimate. >> i guess we have the director here we should ask him that question and keep his feet to the fire as well. so i'll help you do that. but mr. chairman, you've done such a good job since i've been here of providing graphs so, i guess -- imitation is the greatest form of flattery, so i brought some graphs and i've been showing these in wisconsin, to basically describe what i think is the problem facing our nation in terms of economic growth in our debt and deficit situation and certainly, as i was reviewing the testimony that will be given just here today, my concern is that we're trying to address a problem of fiscal

mismanagement with monetary solutions and i think we're seeing that in europe and it just isn't working that well and one of the charts that i showed to groups in wisconsin, i turned smiling face into frowns is i describe the history of our debt. i like using this one because it shows in 1987, our total federal dead was 2.3 trillion. it took us 200 years to accumulate $2.3 trillion worth of debt and we entered an agreement last year to basically give the president the authority to increase the debt ceiling by 2.1 trillion and we'll be over that limit in less than two years and that's a little depressing. the next chart, we'll show total spending and i know an awful lot of people use the shorthand version -- we're cutting spending o'or -- we're proposing cuts -- nobody's proposing cuts. this is also kind of a jaw-dropping chart when i show it to groups in wisconsin because it shows ten years ago our federal government spent

$1.9 trillion. last year we spent $3.6 trillion. we've doubled spending in just ten years. and the argument moving forward the, according to president obama, last budget, he was propose spending $5.8 trillion in 2021. the house budget, spend $4.7 trillion. the graph is pretty visual from the stand point we're not talking about cutting the size of the government. just trying to reduce the rate of growth. another way of looking at spending is on a ten-year spending level. in the '90s we spent $16 trillion over a period of ten years. the last ten years we spent $28 trillion. and then, again, the argument moving forward is according to the president's last budget, he was looking to spend $46 trillion in the next ten years and the house budget would spends $40 trillion. if you heard about that $6 the trol in draconian cuts. that's what we're talking about.

i'm an accountant and i can do the math. neither 46 or 40 is less than 28. we're continuing to grow government. the next to last chart is -- this is the really eye-popping one. compares is total liabilities of the united states to the total net assets, private assets. and these are last year's figures. i haven't revised the chart and i'll tell you the new numbers but last year, according to the trustees and the balance sheet of the united states, the total federal liabilities, the unfunded liability of medicare, social security, total debt, and the lieblgt liability to federal retirees was $99 trillion. if you have household assets, large and small business, $79 trillion. that's a definition of a huge problem right there. the latest balance sheet the united states came out shows the

liabilities as $72 trillion. they revised the estimate and made some actuarial adjustments and taking a look at health care law and making the assumption that the health care law will reduce health costs and the point i'd like to make is in many of our estimates here we're simply deluding ourselves. i don't think it's rational to believer health care law will lower the health care costs. other assumptions we're making. they released the base line. in the baseline their assuming we're going to let these tax cuts expire, all of them. that's a $5 trillion bet. i don't think that's going to happen. the true cost of health care, i've worked with douglas on this and i've written some op eds on it. we're deluding ourselves to think this thing is going to be deficit neutral. it will add trillions of dollars to our total debt over the next ten years. and the other thing to worry about is the economic growth assumptions that are put in these baselines.

we've seen a couple of studies and the cbo itself says, to the extent we miss our growth target by 3%. we need to be concerned about that and i think the final thing we need to be concerned about is we're trying to close the deficit. i think, again, i think in my graphs prepi well describe the spending problem and i would caution anybody that wants to increase tax rates. i want to raise more revenue but growing the economy. raise the revenue by significant tax reform that's pro growth. if we raise rates we delude ourselves to think we'll have the revenue increases by doing that. i think it would harm economic growth and in the end, i think that's what we'll hear in our testimony here today, the solution in europe is to try to enact governmental policies that will promote economic growth in the united states, we have the exact same dynamic and we have got to make sure nothing we do here in washington detracts from

economic growth. so with that, i just have one final chart and it speaks to the u.s. government in relationship to european economies and to me, this is an incredibly key metric. i'm a business guy, manager, accountant so i look at key metrics. the size of our debt in relation to our gdp is important but i think this is even more important. when you look at federal government and it's size and relation to our economy, 24%, you add state and local governments and total government is the 39.2% which means 39 cents of every dollar that our economy generates filters through some form of government. government disawe number of wonderful things and it's not particularly effective or efficient at many things and i think it's a bad metric when you compare it to european socialist nations. congratulations, america, we've arrived at the lower level of european-style socialism.

norway spends 40% of its government gdp. greece, i think we'll hear about greece and italy. greece is 47%. italy is 49%. and france is 53%. that's a metric we need to manage and reduce the size of the government. with that, mr. chairman, i pr appreciate the indulgence and turn it over to witnesses. >> there's lots of things you said i agree with and some that i don't. i think my sharpest area of disagreement would be the new health care law because cbo told us that will reduce deficits and dealt by a trillion dollars many the second ten years and i believe that's the case. i know you don't share that view. that's what makes our democracy vibrant, having disagreements. but tlus much i agree with and what a most strongly agree with

is that rear on an unsustainable course. and i think that's undeniable that we're on an unsustainable course. we've had the head of the congeeshl budget office testify before the committee that we're on an unsustainable course. we've had the head of office and management and budget so testify. the chairman of the federal reserve testify we're on an unsustainable course. we've had the secretary of treasury testify we're on a unsustainable course and i think it's undeniable and it's the central thrust of your argument as i hear it. and i think you're entirely right about that and we've got an obligation, we have an obligation on this committee and an obligation in the senate, the house has an obligation. the president does. to try to get us on aa more sustainable course. and, you know, it doesn't take that much to get us to balance. i said without advocating it, a

6% increase in revenue from what's currently scheduled, a 6% reduction from spending from what's scheduled would save us $6 trillion and balance the budget. now, i don't think it should be an even split revenue and spending and every body in which i've served, fiscal commission group of six, we weighed heavily on the spending cut side of the equation but i personally believe we need additional revenue but as you describe, not with an increase in tax rates. i think that would be counterproductive to our competitive position in the world. you know, there are places where there is agreement on both sides here. my fondest hope is that we find a way this year to actually make

substantial progress. i'm leaving after this year i would love nothing better than to leave behind the legacy of getting america back on track. one of the things facing us, obviously, are external issues. we're discussing, i think, one of the biggest threats to our economy and deficits and debt, is the european economic challenges, another is what could happen with respect to military engagements around the world. we'll be dealing with that at a later hearing. let's go to our witnesses this morning. we'll start with simon johnson. dr. johnson, thank you, again, very much for being here. please proceed. we'll go right through the witnesses. and then we'll open it up to questions and we'll dozen-minute rounds and -- we'll

do seven-minute rounds. dr. johnson, please proceed. >> thank you, senator conrad and johnson and thank you also for placing the conversation today in the context which you just did of the u.s. budget and our unsustainable situation. i think that is absolutely correct and i'd like to frame my remarks very much to responds to that. i'll make three points. first of all, the eurozone has already failed. the eurozone was established as a abc onof the build a large and more powerful economy that this hadn't worked. as you said a moment ago, fiscal mismanagement lies at the heart of their problems and i completely agree. they're trying to solve fiscal problems through, i think you might call it, monetary solutions. i might call it monetary

innovations, a less positive word. i don't think this is going to end well. for them or for us. and with regard to your question about the new agreements, the latest rounds of agreements, senator conrad, i think this is very small steps in the right direction, but very small steps relative to the problems and relative to what they need to do. so i think we should encourage them to do more. not just a fiscal problem. it's a fiscal problem on top of a competitiveness problem untop of an unsustainable balanced trade and of course, on top of debt levels, as you well know, and in greece and now, in portugal and ireland and arguably, also in italy, these debt levels are not sustainable under their current arrangements. now, even minor optimistic colleagues from whom you'll hear in a moment, i think will agree. outcome in europe will be deep recession.

austerity. that's the good scenario. high unemployment, low growth and that's got not good news for our situation. the down side scenario that i would emphasize, my second point, is much worse. the spillovers from their sovereign debt problems to their financial system and from their megabanks that frankly, are very badly run, have far too little capital, those issues were clear already in 2007/2008 when i was the chief economist at the imf, they have not made the system safer and it is a dagger pointed directly at our financial system. and in terms of wha in terms o direct negative impact on our economy and our budget, this is a huge risk. this is a risk we can take steps to mitigate. we cannot solve the european's problems for them. that would be illusion and extreme arrogance on our part to presume but we can build better

protections for ourselves. first and foremost around the stability of our financial system. the financial services roundtable has a report out claiming that all the well in our banking including our big banks and we have fortress balance sheets in those banks and that's not true. it's not an accurate depiction of the level of equity financing relative to debt, the buffs against losses we have in our bank. federal reserve is women aware of this and you showed us the remarks of former vice care blinder and i'm sure mr. bernanke and his colleagues share those sentiments in private with you but they must take the logical step of suspending bank dividends. it makes no sense to aloup the banks to pay out the capital. they should keep it on their balance sheet and build up their equity relative to the losses they could face, for example, if thro would say is a real possibility, if that market were to collapse, we need as much of

a buffer as possible in our banks. and the suspension of bank dividends ordered by the federal reserve applied on a blanket basis would stabilize and help strengthen our financial system. secondly, we should be scoring. your point, senator johnson, we should be scoring for you, the fiscal impact of financial calamity. and particularly, the dangers posed by financial system that's run irresponsibly. they spore for you important contingent liabilities including as you showed us, medicare. that's a contingent. we don't know what exact costs will be for medicare in 30 been 40 or 50 years and the cbo takes a hard look at that and gives you a sensible baseline read and they should do the same for our financial structures as exposed to europe. what would happen if there was a serious solve when debt for italy? how would that affect our economy, even the principal holds with no direct cost from

bailouts it could still cause a massive recession and lose a lot of tax revenue and it would push up the borrowing at the federal level and state and local levels to the extent that's possible. you should be looking at it. i did not propose you hold up this year's budget on that basis but when you talk to director i think you should impress on him i'm on the cbo panel of economic advisers. i think they'll be receptive if congress pushes them hard in that direction. there are serious unfunded liabilities for us in this area. third and finally, with regard to the international monetary fund. the imf should be working to build a firewall, not within the eurozone. not lend more money to the dangerous and counterproductive situations we now see in the eurozone. the europeans run a reserve currency, the euro. they are perfectly capable of sorting out this problem for

themselves. they haven't done it yet, i grant you, and they need a lot of encouragement and they're getting that from the executive branch, mr. geithner has been good on this and more encouragement from congress but most important, the imf should focus on protecting other countries. build a firewall outside the eurozone and protect the innocent bystanders. and let them sort it out and help other countries with whom we do a lot of trade that have financial systems intertwined with ours and have them buffs themselves against calamity that might arise in a situation. the imf have taken this up and issued a paper to their membership. it was a secret paper, the details are poorly related. i understand they can't do hearings. but they can brief you in private and communicate their intent and i would urge you and your staff to impress on them at every available opportunity, build a firewall outside of the

eurozone. not attempt to fix the eurozone. the europeans should do that for themselves. thank you very much. >> thank you, once again, excellent testimony. >> thank you, your very kind remarks at the outzest about our stewardship of 30 years but i'm not league. i'll stay on as a scene juror fellow and hope to continue to participate in activities like this. one of the great privileges i've had over that period is to work with you, this committee many times and i thank you for the opportunity to do so again. i share with you that simon expressioned, you've expressed, senator johnson expressioned, europe is in deep economic difficulty and no doubt they're headed for recession that may be prolonged. europeans have failed to get ea