–Federal Reserve Board Chairman To Testify To House Budget Committee
–Senate Panel To Hold Hearing Thurs on U.S.-China Economic Issues
–House, Senate Work on Reg Reform Set To Go Public This Week
–Senate Hopes To Take Up $113 Billion Tax Extenders Bill

By John Shaw

WASHINGTON (MNI) – Federal Reserve Board Chairman Ben Bernanke will
travel to Capitol Hill this week to provide an assessment of the
American economy.

Bernanke will testify Wednesday morning at 10 a.m. EDT before the
House Budget Committee.

The Fed chairman is certain to be asked by lawmakers to discuss the
state of the recovery, how Europe’s economic woes may affect the U.S.
and America’s serious fiscal problems.

The central item on the legislative agenda will be the attempt by
the House and Senate to begin drafting a compromise financial regulatory
reform bill.

The House passed its regulatory reform bill in December of 2009
while the Senate approved its bill several weeks ago.

The House-Senate conference committee will try to reconcile the
House and Senate regulatory reform bills. Any compromise must then be
approved by the full House and Senate.

Senate Banking Committee Chairman Chris Dodd and House Financial
Services Committee Chairman Barney Frank will formally preside over the
conference committee when it convenes this week.

House leaders are expected to name their conferees early this week.
Senate leaders have already appointed seven Democrats and five
Republicans to the conference committee.

With Congress in recess last week, the staffs of Dodd and Frank met
to review the House and Senate bills, identifying areas of similarity
between the two packages and matters in which the two bills differ.

Both Dodd and Frank said they would like a final bill to be
approved by Congress and sent to President Obama by July 4th.

One of the central issues to be resolved will is how to regulate
the over-the-counter derivatives market. Both the House and Senate bill
require most derivatives to be traded through third parties, but the
Senate bill has fewer exemptions for end-users. Additionally, the Senate
version would force banks to spin off their derivatives units or risk
losing access to the Fed’s discount window and FDIC insurance.

Administration officials and key congressional Democrats have
indicated they are uncomfortable with the Senate’s derivatives language.

Sen. Jack Reed, a Democrat who will be on the conference committee,
has said that the provisions preventing banks from buying and selling
securities solely for the firm’s profit would be a more effective tool
to control risk than preventing banks from trading derivatives.

The House and Senate bills require expanded audits of the Federal
Reserve Board, but the House version is both more expansive and
intrusive and would include a review of some monetary decisions made by
the Fed.

The two bills also differ on the precise powers of a new consumer
protection entity; the House bill creates a stand-alone agency while the
Senate bill places it within the Fed.

Congressional Democratic leaders will likely discuss this week if
they will attempt to pass the annual budget resolution which sets five
year spending and revenue goals and makes deficit estimates.

Congress is required by law by pass annual budget resolutions by
April 15, but this deadline is only occasionally met.

In addition to setting broad fiscal goals, a budget resolution sets
a ceiling on discretionary spending for the coming year which then
triggers work on the 12 annual spending bills that fund discretionary
programs.

Senate Budget Committee Chairman Kent Conrad told reporters two
weeks ago that he is trying to persuade his Democratic colleagues to
consider the budget resolution that his panel approved several weeks
ago.

This plan, he said, would reduce budget deficits from 10% of GDP to
3% of GDP. Conrad’s five-year fiscal plan would ratchet budget deficits
down from $1.4 trillion in fiscal year 2010 to $545 billion in FY’15. A
deficit of $545 billion in FY’15 would represent about 3% of GDP.

Conrad’s budget allocates $1.122 trillion for discretionary
programs in FY’11. This is $4 billion below Obama’s request.

In a recent briefing, House Speaker Nancy Pelosi signalled that
House Democrats will not try to pass a five-year fiscal blueprint this
year. She said there are “several other ways to meet our responsibility”
regarding the budget.

Of the $3.8 trillion federal budget, more than $1 trillion is in
the discretionary portion of the budget which is allocated in the annual
spending bills.

Congress could pass a resolution that “deems” the budget is passed,
thus setting a ceiling on discretionary spending to allow work to
advance on the FY’11 appropriations bills.

Of more immediate fiscal concern for congressional leaders is how
to deal with two other fiscal issues.

The House is expected to take up an emergency spending bill
relatively soon. The Senate passed a $59 billion version several weeks
ago; the House version is $84 billion.

The Senate is expected to consider as early as this week a $113
billion package of tax cuts and benefit extensions which the House
recently approved.

The package passed by the House would extend about a dozen tax cuts
that expired at the end of last year, expand unemployment benefits, and
provide a 19 month extension of current Medicare payments for doctors,
the so-called “doc fix.”

The Senate Finance Committee has scheduled a hearing on the
U.S.-China economic relationship for Thursday at 10 a.m. No witnesses
have been announced yet.

** Market News International Washington Bureau: 202-371-2121 **

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