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The following are highlights of Federal Reserve Chairman Ben Bernanke's testimony on Tuesday to the Senate Banking Committee on the Fed semiannual report on monetary policy and the economy.


"The banks are nervous about lending given their concerns about their own capital positions and about risk aversion and credit issues in the market place. In a way, what the Fed is doing is borrowing by paying interest on reserves to the banks. That's where we get the money and we're standing in between the banks and the market place using that money, recycling it into commercial paper, asset-backed securities and other forms of credit. In a way we are becoming the counterparty between the markets and the banks. When the banks feel they have opportunities to invest, they will. That will begin to create expansion in credit and money supply. That will be the signal for the Fed to begin to pull back. Right now, it's clear banks are more willing to hold reserves than they are to make loans."


"It seems to be, at least for now, that the dollar and U.S. debt are still very attractive around the world. There is a lot of demand for holding our Treasuries. That being said, we can't go running trillion dollar deficits indefinitely and it's going to be very important as we emerge from the crisis, as we begin to go into recovery stage that we get control of the fiscal situation and begin to bring down the deficit to a sustainable level. For the moment, foreign demand for U.S. securities is strong, but if we don't get control eventually they are going to lose confidence."

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