Chairman Ben S. Bernanke

Semiannual Monetary Policy Report to the Congress

Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

July 21, 2010

Chairman Dodd, Senator Shelby, and members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress.

Economic and Financial Developments
The economic expansion that began in the middle of last year is proceeding at a moderate pace, supported by stimulative monetary and fiscal policies. Although fiscal policy and inventory restocking will likely be providing less impetus to the recovery than they have in recent quarters, rising demand from households and businesses should help sustain growth. In particular, real consumer spending appears to have expanded at about a 2-1/2 percent annual rate in the first half of this year, with purchases of durable goods increasing especially rapidly. However, the housing market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction.

An important drag on household spending is the slow recovery in the labor market and the attendant uncertainty about job prospects. After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers’ employment and earnings prospects.

In the business sector, investment in equipment and software appears to have increased rapidly in the first half of the year, in part reflecting capital outlays that had been deferred during the downturn and the need of many businesses to replace aging equipment. In contrast, spending on nonresidential structures–weighed down by high vacancy rates and tight credit–has continued to contract, though some indicators suggest that the rate of decline may be slowing. Both U.S. exports and U.S. imports have been expanding, reflecting growth in the global economy and the recovery of world trade. Stronger exports have in turn helped foster growth in the U.S. manufacturing sector.

Inflation has remained low. The price index for personal consumption expenditures appears to have risen at an annual rate of less than 1 percent in the first half of the year. Although overall inflation has fluctuated, partly reflecting changes in energy prices, by a number of measures underlying inflation has trended down over the past two years. The slack in labor and product markets has damped wage and price pressures, and rapid increases in productivity have further reduced producers’ unit labor costs.

My colleagues on the Federal Open Market Committee (FOMC) and I expect continued moderate growth, a gradual decline in the unemployment rate, and subdued inflation over the next several years. In conjunction with the June FOMC meeting, Board members and Reserve Bank presidents prepared forecasts of economic growth, unemployment, and inflation for the years 2010 through 2012 and over the longer run. The forecasts are qualitatively similar to those we released in February and May, although progress in reducing unemployment is now expected to be somewhat slower than we previously projected, and near-term inflation now looks likely to be a little lower. Most FOMC participants expect real GDP growth of 3 to 3-1/2 percent in 2010, and roughly 3-1/2 to 4-1/2 percent in 2011 and 2012. The unemployment rate is expected to decline to between 7 and 7-1/2 percent by the end of 2012. Most participants viewed uncertainty about the outlook for growth and unemployment as greater than normal, and the majority saw the risks to growth as weighted to the downside. Most participants projected that inflation will average only about 1 percent in 2010 and that it will remain low during 2011 and 2012, with the risks to the inflation outlook roughly balanced.

One factor underlying the Committee’s somewhat weaker outlook is that financial conditions–though much improved since the depth of the financial crisis–have become less supportive of economic growth in recent months. Notably, concerns about the ability of Greece and a number of other euro-area countries to manage their sizable budget deficits and high levels of public debt spurred a broad-based withdrawal from risk-taking in global financial markets in the spring, resulting in lower stock prices and wider risk spreads in the United States. In response to these fiscal pressures, European leaders put in place a number of strong measures, including an assistance package for Greece and €500 billion of funding to backstop the near-term financing needs of euro-area countries. To help ease strains in U.S. dollar funding markets, the Federal Reserve reestablished temporary dollar liquidity swap lines with the ECB and several other major central banks. To date, drawings under the swap lines have been limited, but we believe that the existence of these lines has increased confidence in dollar funding markets, helping to maintain credit availability in our own financial system.

Like financial conditions generally, the state of the U.S. banking system has also improved significantly since the worst of the crisis. Loss rates on most types of loans seem to be peaking, and, in the aggregate, bank capital ratios have risen to new highs. However, many banks continue to have a large volume of troubled loans on their books, and bank lending standards remain tight. With credit demand weak and with banks writing down problem credits, bank loans outstanding have continued to contract. Small businesses, which depend importantly on bank credit, have been particularly hard hit. At the Federal Reserve, we have been working to facilitate the flow of funds to creditworthy small businesses. Along with the other supervisory agencies, we issued guidance to banks and examiners emphasizing that lenders should do all they can to meet the needs of creditworthy borrowers, including small businesses.¹ We also have conducted extensive training programs for our bank examiners, with the message that lending to viable small businesses is good for the safety and soundness of our banking system as well as for our economy. We continue to seek feedback from both banks and potential borrowers about credit conditions. For example, over the past six months we have convened more than 40 meetings around the country of lenders, small business representatives, bank examiners, government officials, and other stakeholders to exchange ideas about the challenges faced by small businesses, particularly in obtaining credit. A capstone conference on addressing the credit needs of small businesses was held at the Board of Governors in Washington last week.² This testimony includes an addendum that summarizes the findings of this effort and possible next steps.

Federal Reserve Policy
The Federal Reserve’s response to the financial crisis and the recession has involved several components. First, in response to the periods of intense illiquidity and dysfunction in financial markets that characterized the crisis, the Federal Reserve undertook a range of measures and set up emergency programs designed to provide liquidity to financial institutions and markets in the form of fully secured, mostly short-term loans. Over time, these programs helped to stem the panic and to restore normal functioning in a number of key financial markets, supporting the flow of credit to the economy. As financial markets stabilized, the Federal Reserve shut down most of these programs during the first half of this year and took steps to normalize the terms on which it lends to depository institutions. The only such programs currently open to provide new liquidity are the recently reestablished dollar liquidity swap lines with major central banks that I noted earlier. Importantly, our broad-based programs achieved their intended purposes with no loss to taxpayers. All of the loans extended through the multiborrower facilities that have come due have been repaid in full, with interest. In addition, the Board does not expect the Federal Reserve to incur a net loss on any of the secured loans provided during the crisis to help prevent the disorderly failure of systemically significant financial institutions.

A second major component of the Federal Reserve’s response to the financial crisis and recession has involved both standard and less conventional forms of monetary policy. Over the course of the crisis, the FOMC aggressively reduced its target for the federal funds rate to a range of 0 to 1/4 percent, which has been maintained since the end of 2008. And, as indicated in the statement released after the June meeting, the FOMC continues to anticipate that economic conditions–including low rates of resource utilization, subdued inflation trends, and stable inflation expectations–are likely to warrant exceptionally low levels of the federal funds rate for an extended period.³

In addition to the very low federal funds rate, the FOMC has provided monetary policy stimulus through large-scale purchases of longer-term Treasury debt, federal agency debt, and agency mortgage-backed securities (MBS). A range of evidence suggests that these purchases helped improve conditions in mortgage markets and other private credit markets and put downward pressure on longer-term private borrowing rates and spreads.

Compared with the period just before the financial crisis, the System’s portfolio of domestic securities has increased from about $800 billion to $2 trillion and has shifted from consisting of 100 percent Treasury securities to having almost two-thirds of its investments in agency-related securities. In addition, the average maturity of the Treasury portfolio nearly doubled, from three and one-half years to almost seven years. The FOMC plans to return the System’s portfolio to a more normal size and composition over the longer term, and the Committee has been discussing alternative approaches to accomplish that objective.

One approach is for the Committee to adjust its reinvestment policy–that is, its policy for handling repayments of principal on the securities–to gradually normalize the portfolio over time. Currently, repayments of principal from agency debt and MBS are not being reinvested, allowing the holdings of those securities to run off as the repayments are received. By contrast, the proceeds from maturing Treasury securities are being reinvested in new issues of Treasury securities with similar maturities. At some point, the Committee may want to shift its reinvestment of the proceeds from maturing Treasury securities to shorter-term issues, so as to gradually reduce the average maturity of our Treasury holdings toward pre-crisis levels, while leaving the aggregate value of those holdings unchanged. At this juncture, however, no decision to change reinvestment policy has been made.

A second way to normalize the size and composition of the Federal Reserve’s securities portfolio would be to sell some holdings of agency debt and MBS. Selling agency securities, rather than simply letting them run off, would shrink the portfolio and return it to a composition of all Treasury securities more quickly. FOMC participants broadly agree that sales of agency-related securities should eventually be used as part of the strategy to normalize the portfolio. Such sales will be implemented in accordance with a framework communicated well in advance and will be conducted at a gradual pace. Because changes in the size and composition of the portfolio could affect financial conditions, however, any decisions regarding the commencement or pace of asset sales will be made in light of the Committee’s evaluation of the outlook for employment and inflation.

As I noted earlier, the FOMC continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. At some point, however, the Committee will need to begin to remove monetary policy accommodation to prevent the buildup of inflationary pressures. When that time comes, the Federal Reserve will act to increase short-term interest rates by raising the interest rate it pays on reserve balances that depository institutions hold at Federal Reserve Banks. To tighten the linkage between the interest rate paid on reserves and other short-term market interest rates, the Federal Reserve may also drain reserves from the banking system. Two tools for draining reserves from the system are being developed and tested and will be ready when needed. First, the Federal Reserve is putting in place the capacity to conduct large reverse repurchase agreements with an expanded set of counterparties. Second, the Federal Reserve has tested a term deposit facility, under which instruments similar to the certificates of deposit that banks offer their customers will be auctioned to depository institutions.

Of course, even as the Federal Reserve continues prudent planning for the ultimate withdrawal of extraordinary monetary policy accommodation, we also recognize that the economic outlook remains unusually uncertain. We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability.

Financial Reform Legislation
Last week, the Congress passed landmark legislation to reform the financial system and financial regulation, and the President signed the bill into law this morning. That legislation represents significant progress toward reducing the likelihood of future financial crises and strengthening the capacity of financial regulators to respond to risks that may emerge. Importantly, the legislation encourages an approach to supervision designed to foster the stability of the financial system as a whole as well as the safety and soundness of individual institutions. Within the Federal Reserve, we have already taken steps to strengthen our analysis and supervision of the financial system and systemically important financial firms in ways consistent with the new legislation. In particular, making full use of the Federal Reserve’s broad expertise in economics, financial markets, payment systems, and bank supervision, we have significantly changed our supervisory framework to improve our consolidated supervision of large, complex bank holding companies, and we are enhancing the tools we use to monitor the financial sector and to identify potential systemic risks. In addition, the briefings prepared for meetings of the FOMC are now providing increased coverage and analysis of potential risks to the financial system, thus supporting the Federal Reserve’s ability to make effective monetary policy and to enhance financial stability.

Much work remains to be done, both to implement through regulation the extensive provisions of the new legislation and to develop the macroprudential approach called for by the Congress. However, I believe that the legislation, together with stronger regulatory standards for bank capital and liquidity now being developed, will place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years.

Thank you. I would be pleased to respond to your questions.

• Many top educators double dip the system – Akron Beacon Journal
• School chiefs get better deal than teachers – Akron Beacon Journal
• Double dipping saps pension funds as school superintendents cash in – Toledo Blade/Akron Beacon Journal
• Pension rules encourage retire-rehire deals – Dayton Daily News
• Double dipping state and local employees collect paycheck & pension – The Plain Dealer
• Ohio taxpayers pay for state workers’ pensions but it’s all cloaked in secrecy – Akron Beacon Journal
• Pensions lobby has power at the Statehouse – Toledo Blade

Fannie, Freddie to Delist – Associated Press

from Countdown with Keith Olbermann

Visit msnbc.com for breaking news, world news, and news about the economy

Finance, Markets, Economy

• Markets Pricing in ‘Paradigm Change’ – El-Arian – CNBC
• Best Buy profits don’t meet target - CNBC
• Data and BP top market agenda - MarketWatch

Other Stuff

• Efforts to control gulf spill described as ‘chaotic’ - New York Times
• Setbacks cloud U.S. plan to exit Afghanistan – New York Times
• Banks Yielding on Volcker, Picking Other Fights – New York Times
• Kasich’s tax returns flip flop - Columbus Dispatch
• Editorial: Your tax dollars at work - Columbus Dispatch
• U.S. man arrested in Pakistan for Hunting bin-Laden – Agence France Presse
• More Alvin Greene - Washington Post

Click the map to go to the New York Times site and use the oil spill tracker.

As usual, the New York Times’ interactive maps rule.  You can visit the Times’ oil spill tracking map here.  Check out the “play” feature at the upper left portion of the map to see the oil spill grow and move over time.

There are also tabs at the top of the map to change the data shown.  For instance, you can see a plot of the effects of the spill on wildlife.

• Op-Ed, Thomas Suddes: Pandering in Ohio is a Two Party Business – The Plain Dealer
• Editorial: What Price are Cafaros Paying? – The Vindicator
  
• Kasich and His ‘Bible Guys’ – Columbus Dispatch
• Op-Ed, Brent Larkin: Close Races Brewing in Ohio – The Plain Dealer
• Editorial: Ohio Senate Vacation Extends Foreclosure Follies – The Plain Dealer
  
• NRA Working Ohio Legislature – Columbus Dispatch
  
• ODOT Looks for Future Funding of Rest Areas – The Plain Dealer
  
• Op-Ed, Joe Hallett: Redistricting Reform Falls Prey to Dreams of Power – Columbus Dispatch
• Op-Ed, Jonathan Riskind: Election Surprises Loom in November – Columbus Dispatch
• Editorial: Dollar by Dollar – Akron Beacon Journal
• Editorial: Dollar by Dollar (Part II) – Akron Beacon Journal
  
• Editorial: Ohio Late but on Right Testing Track – Dayton Daily News
• Tobacco Lobbyist Biggest Boehner Donor – Columbus Dispatch
• Kilroy on FinReg Conference Committee – Columbus Dispatch
• Brown, Voinovich Work to Fund Nuclear Cleanup – Columbus Dispatch

Selected News

• Increasing Number of Mahoning Valley Families Face Foreclosure – The Vindicator
• Sex Offender Registration Force Some Underground – The Plain Dealer
• Do Sex-Offender Laws Make Us Safer? – The Plain Dealer
• 17.5% of Ohioans Underemployed – Dayton Daily News
• Dayton-Cincy Corridor Important to U.S. Exports – Dayton Daily News
• Commercial Properties Selling at Deep Discounts – Dayton Daily News
• Op-Ed, Michael Douglas: An Energy Revolution for the Great Lakes – Akron Beacon Journal
  

It’s totally reasonable and inevitable that the share price of BP would suffer mercilessly from the company’s gargantuan liability in the Gulf of Mexico.  Earlier this week I created the following chart of BP’s daily closing share price for it’s U.S.-listed shares.

When Interior Secretary Ken Salazar opined publicly that the company ought to be responsible for all unemployment claims related to the federal government’s six month moratorium on offshore Gulf drilling, BP’s stock took an especially nasty dive to a 14-year low on Wednesday.  I hope that the Obama Administration’s efforts to turn public opinion back in the president’s favor on this mess don’t backfire and kill what this country needs to be the proverbial “Golden Goose” for the next several years.  A heavily-regulated and monitored BP – in a strong financial position – is the company that will be able to afford the tens of billions of dollars needed to make the people and environment of the Gulf Coast whole.

As you can see, in March 2009 Mass Layoff Events hit a peak just as you’ll remember the stock market bottomed.  Unfortunately, they are ticking up once again – and the market is in the midst of several weeks of volatility.  I’m not making a direct cause and effect statement here, but I am wondering if this employment statistic, along with the other dreary numbers, supports one argument out there that the growth we’ve experienced has been merely the restocking of depleted inventories.

January 26, 2010

(Source: Office of the Governor, State of Ohio)

Speaker Budish, President Harris and Chief Justice Moyer. President Harris and Chief Justice Moyer will both be retiring at the end of this year. This is their last State of the State as public officials and I want to thank them for their service to Ohio. Leader Batchelder and Leader Cafaro, Lt. Governor Fisher, statewide elected officials, members of the Cabinet, and a special word of thanks to Director Terry Collins who is retiring after 33 years of service to the Department of Rehabilitation and Correction, members of the General Assembly and the Supreme Court, distinguished guests, First Lady Frances Strickland, and my fellow Ohioans…
I believe in Ohio.

I believe in Ohio because you can’t write the history of the world without us – without flight, without light, without Rock and Roll, without professional football, without John Glenn in space and John Glenn on the Earth, without the tomato, without the underground railroad, without Roy Rogers, without tires and ignition switches, without the humble fly swatter, without the Richter Scale, without Jesse Owens running for gold and for all of us in Berlin, without street lights, without fire departments, without Superman.

I believe in Ohio because Ohio will power the future.

The first major glass company to open its doors in Toledo was Libbey Glass.  It was energy that brought Edward Libbey here. He brought his company from the East Coast to Ohio in the 1880s because our natural gas could fuel his operations at a lower cost.

From that fateful decision more than a century ago, Toledo became an international center for glass production. And while energy once brought us the glass industry, today that glass industry is bringing us new energy companies making solar panels.

That means jobs in solar research and design and production and distribution and installation. And that means a renewable source of power that will attract new companies in countless industries who flock to places where there is better access to better energy.  Just ask Libbey Glass – the largest glass maker in the country, still at home in Toledo, and once again in the midst of a great energy center.

I believe in Ohio because we have made a commitment to advanced energy and we are seeing results.

When I took office Ohio had the nation’s weakest advanced energy standard for electricity production. Today, Ohio has the nation’s seventh most aggressive standard.

In 2007, not one drop of ethanol was produced in Ohio. Today, four ethanol facilities in Ohio are producing 295 million gallons annually.

In renewable and advanced energy manufacturing projects, Ohio now ranks first among the 50 states.

The Council of State Governments scoured the nation to tally the total number of new green jobs created last year. And what did they find? Ohio ranks first.

We’ve made it this far, this fast on advanced energy because we pursued smart, responsible policies and we made smart, responsible investments.

Two years ago, Ohio was one of the first states to respond to the international economic crisis with a bipartisan jobs bill that made key investments in several high growth industries, including a 150 million dollar commitment to advanced energy. 

And now Quasar Energy Group is building an anaerobic digester in Franklin County. The facility will keep waste product from farms, food companies and elsewhere out of landfills and transform it into fuel and fertilizer.
In Shelby County, Wayne Trail Technologies is creating a better battery for hybrid vehicles.

Aided by our jobs bill, energy projects like these are in the works all across Ohio.

Our electricity reform bill prevented the kind of skyrocketing rate increases of 50, 60, 70 percent that crippled states that failed to act.  Instead, Ohioans pay 10 percent less for electricity than the national average.

And that reform bill established reliability standards that are essential to Ohio companies. 

DuPont officials testified two years ago that they would not expand their Circleville plant because their electrical service wasn’t dependable. But just last week, DuPont announced a 175 million dollar investment to retool a facility that once made components for VCR tapes into one that will make film for solar panels. The company credits our energy reforms with making Ohio a better place for them to do business.

We are rapidly deploying federal stimulus funds to advance 500 million dollars in projects supporting an array of energy jobs from cutting-edge research to home weatherization.

We have continued the vital work of the Third Frontier – which has made 150 million dollars in energy technology investments.

We’ve brought 15 state and private universities together in the University Clean Energy Alliance of Ohio to unite their efforts in pursuit of energy breakthroughs.

And, in our first budget we dramatically accelerated our school construction program and made it into one of the largest energy-efficient building initiatives ever created.

I believe in Ohio because we are not sitting back and letting other states pass us by. We are taking the vital next steps to advance our energy economy.

I am pleased to announce today that Ohio is creating the Energy Gateway Fund.  We will make a unique and lasting investment in fuel cells, solar, wind, energy storage and the like with 30 million dollars in federal job stimulus funds and 10 million dollars from our state job stimulus program.

This 40 million dollar commitment will offer access to capital for new and expanding advanced energy companies. And we will at least double the impact of our efforts by requiring those seeking state funds to, at a minimum, match our investment dollar for dollar with new private funds. Revenue generated from the fund’s investments will keep powering Ohio’s economy because it will be reinvested in additional energy companies.

With the federal tax credit currently in place for renewable energy, companies will be making commitments to new facilities in the coming months.  But the fact of the matter is that Ohio’s tax structure discourages wind and solar companies from coming to Ohio to generate renewable energy.

We should give those companies every reason to choose Ohio. That’s why I am asking the legislature to erase Ohio’s tangible personal property tax on generation for wind and solar facilities that break ground this year, create Ohio jobs, and begin producing energy by 2012.

And we will no longer be shy about our place at the forefront of the energy revolution.

That’s why we are proclaiming Ohio’s status as “America’s Energy Gateway.” We will transform turnpike service plazas in Williams and Mahoning counties into showcases of Ohio’s advanced energy capabilities. Visitors to Ohio will learn and Ohioans will be reminded that Ohio is producing a new kind of energy to power our future.

There will come a day when Ohio will be the undisputed home of advanced energy. A day when we will have cast off those two tired little words that have been used to put us down. Rust Belt. Because that’s not who we are.  A day when the iconic image of the Texas oil rig will be eclipsed by the Ohio-made wind turbine and solar panel.

Orville Wright once said that everything he accomplished in his life was the result of his upbringing here in Ohio. In Ohio he was taught to question, explore, and seek new answers. I believe in Ohio because that spirit is very much alive in our great state today.

I believe in Ohio because we have laid the foundation for growth and a thriving middle class.  I believe in Ohio – unconditionally.

But we must not lose sight of the fact that many of our people are hurting right now.

The wake of the Wall Street crisis has knocked over banks, and mortgage lenders and pension plans, and companies in every sector of the economy; leaving us in the midst of the worst economic collapse in generations.

People who have worked hard all their lives and who may have never bought a stock or a bond, and certainly never traded collateralized debt, were hit by a storm of greed they didn’t cause, they didn’t contribute to, and they would never have benefited from – but for which they must now repair the damage.

In Stark County last year, 835 people applied for one job opening as a janitor at a junior high school.

835 people. Scrambling for one job.

One man told the local newspaper that getting the job would be like “winning the lottery.”

I want to say something to the 834 people who applied for that job and didn’t get it. I want to say something to every person in Ohio who is unemployed or under-employed:  I am fighting for you. 

I can’t say it will be today. I can’t say it will be easy. But we are going to fix this thing.

And you have my word on this:  I will move heaven and earth to create jobs in Ohio, and I will not rest until it’s done.

Because the state of the state is unyielding.

Unyielding in the face of the global economic turmoil. Unyielding in the face of budget cuts and job loss. Unyielding in the knowledge that we are more than our challenges. And unyielding in the belief that Ohio will always be not just our home but our hope.

I believe in Ohio because we may have been dealt a tough hand, but we are going to do what Ohioans have always done – we’ll play it to win.

We’ve had to make tough decisions. We’ve had to make sacrifices. But we have worked to reduce the blow of this international economic meltdown, and the decisions we have made have positioned Ohio to not only recover but emerge rebuilt and renewed.

In our bipartisan jobs plan, we made major investments  in advanced energy and also in logistics and distribution, public works, and other areas.

We have made the largest commitment in our history to improving Ohio’s infrastructure while saving resources in every way possible. In fact, we will increase infrastructure spending this year by 30 percent while operating with a Department of Transportation that has its smallest workforce in 30 years.

We have revitalized our job training efforts to build the skills our people need for employment in high growth industries. All told, we have helped more than 140,000 Ohioans receive job training since January 2007.

We have made a commitment to building a tax structure that encourages job growth and is respectful of our citizens.

We expanded the Homestead Property Tax Exemption, saving  the average senior citizen homeowner 400 dollars each and every year.

Our business taxes are the lowest in the Midwest.

In fact, every year I have been in office we have cut taxes.

And even with the delay in implementing the final year of the personal income tax reduction, our efforts to carry out the tax reform bill of 2005 have already provided the largest tax cut in modern Ohio history.

We reformed our regulatory process to cut down on red tape and to make it easier for companies to do business in Ohio.  In fact, we tossed out 220 state rules and we revised well over one thousand more.

I believe in Ohio because job creators know Ohio is a great place to do business.

The Small Business and Entrepreneurship Council studies the business climate in the 50 states. They consider taxes and regulations and the like, and then rank the states on whether they are a good place to start and grow a business.

In 2006, Ohio ranked 38^th.

In their new report issued just a few weeks ago, Ohio now ranks 11^th.

And, we are among the very best in the Midwest; and best among the states that border us.

I believe in Ohio because we have always been a state that invents things, designs things, makes things, grows things. And the world knows this. In fact, we are the only state in the nation where exports have grown every year since 1998.

I believe in Ohio because I have never met an Ohioan who thinks we should put in a call to China and ask them if they want more American jobs. Because we know there is no product that wouldn’t benefit from having  “Made in Ohio” stamped on it.

But Ohio business leaders have told me time and again that lack of access to capital impedes them from competing and expanding. Our businesses are operating with one hand tied behind their backs because when Wall Street ran amok and damaged the American economy, it created a credit crunch for even the most fiscally sound companies.

In particular, we have small manufacturers in Ohio today who cannot afford to expand their companies and call back laid off workers, even as orders increase, because they lack capital.  If they miss this window to expand and innovate, it could cost Ohioans jobs for a generation.

Quite frankly, I am convinced that this is the single greatest factor inhibiting economic recovery. So we are going to do something about it.

Today, I’m pleased to announce that Lt. Governor Lee Fisher and Ohio Treasurer Kevin Boyce have been working with a group of Ohio lenders to establish the Small Business Growth Partnership.

The first initiative of the partnership will be the creation of a business lending clearinghouse that points small businesses in the direction of  possible sources for the working capital they need to grow their businesses and create jobs. 

We are also meeting with lenders to establish a working capital jobs fund.  This public-private partnership would become a new, dedicated source for business working capital.

Let me be clear. This is not a bailout or a hand out – these are loans for companies that could make more products, more profits, and most importantly, more jobs if they simply had the required capital. 

My friends, Ohioans have all the skills needed to do jobs that are being outsourced overseas. In fact, Ohioans have the skills to perform those jobs better.  That’s why today I am announcing Insource Ohio, a collaboration between the Ohio Department of Development, Job and Family Services, and the Board of Regents. Insource Ohio will work with any Ohio company currently outsourcing or considering outsourcing to demonstrate how Ohio’s workforce can meet their needs within a business model that remains competitive. 

I believe in Ohio because our workforce is second to none. But when jobs disappear we owe Ohioans every opportunity to prepare themselves for new employment.

That’s why today I am announcing the creation of a Manufacturing Certificate. Those who have worked in manufacturing will be able to obtain a credential they can take to future employers that documents their full range of job skills and experience. And, certificate holders will be able to earn credit toward  additional job training and education.

People are coming to our community colleges looking for opportunity.  In fact, enrollment is up 23 percent over the last three years. A lot of folks want to create their own opportunity – and that’s why we should help them channel their passions into a business.

Today I am announcing the creation of a new program called Build Your Own Business.  In partnership with our Small Business Development Centers, Ohio’s community colleges and adult career centers will offer unemployed Ohioans courses and training on starting a business. Participants will have access to business mentors and to small startup loans of up to five thousand dollars to help our new entrepreneurs take their first steps forward.

Build Your Own Business represents a statewide expansion of the highly successful program at Lorain County Community College where they offer education and support to budding small business people. And where 60 of the 62 businesses they have mentored are succeeding.

Build Your Own Business is just one of four significant job training programs I think should be the focus of new revenue Ohio will receive from casino licensing fees.  

I would ask the legislature to consider implementing our co-op internship program to give college students an opportunity to get invaluable experience in their field and encourage our young people to stay and thrive in Ohio.  And, we should support the highly successful Ohio Workforce Guarantee that averts layoffs and spurs business expansion by providing training resources to companies.  And, I look forward to working with the legislature to create an urban workforce initiative to provide incentives for Ohio companies to immediately put unemployed Ohioans back to work.

I believe in Ohio because we favor common sense solutions over ideological extremes.

Now with a new regulatory reform we are calling Fast TRAC, we will be able to accelerate funding and final approval for our most promising job-creating transportation projects. And we will dedicate an additional 100 million dollars in cost savings to these Fast TRAC projects, putting more Ohioans to work building roads, repairing bridges and making Ohio move.

We created the University System of Ohio to unify higher education in our state and to help us pursue the goal of being best in the nation at turning our university research into new jobs and economic development.

And today we are pursuing a groundbreaking agreement that will help our university system turn great ideas into new products and new jobs.

My administration and Attorney General Rich Cordray are overseeing talks toward reaching a standing agreement between the entire University System of Ohio and consumer product powerhouse P&G.

With the contract in place, we will speed up and strengthen research collaborations between our university faculty and the company. P&G will get the benefit of our innovative thinkers. Our universities will get the benefit of unprecedented opportunities to collaborate with P&G on new products. And Ohioans will get the benefit of new economic development.

And we can use this agreement as a model for other companies and industries that want to work with Ohio’s innovative institutions. Indeed, today I am calling on the Ohio Auto Industry Support Council to build on this historic agreement and create a network that will link Ohio’s manufacturers to great research going on in Ohio.

I believe in Ohio because we are not passively waiting for a better day. We’re pursuing pragmatic solutions and building public/private partnerships that let us focus the energies of government on the needs of the people and guide the energies of private entities toward work that advances Ohio.

With the Third Frontier, Ohio made a commitment to securing our place at the forefront of the research economy. And that commitment has paid tremendous dividends.

Certified independent analysis shows that the overall Third Frontier effort has created 48,000 jobs for Ohioans and leveraged more than 6.6 billion dollars in outside investments. And the Third Frontier is a major reason why venture capital investments in Ohio have been growing more than 20 percent a year, well more than twice the rate of growth nationwide.

This ten year investment in revitalizing Ohio – launched in 2002 under the leadership of former Governor Bob Taft and with the bipartisan support of elected officials and voters – is set to expire. I want to thank the legislature for working toward the renewal of this vital program and I am hopeful that we will meet next week’s deadline for placing the Third Frontier on the ballot for voters’ consideration in May.

Ohio’s promise, Ohio’s opportunity is not to be found by clinging ever tighter to a fading past. Indeed, the scriptures warn us, “Do not say ‘why were the former days better than these,’ for it is not from wisdom that you ask this.”

Because, my friends, our renewal lies before us, not behind us.

And even as we acknowledge the sincere shared sacrifice we have endured in recent years, we shouldn’t lose sight of the fact that we have accomplished some things that no other state has been able to do.

We have followed a plan and defied our circumstances to protect our investment in the future.

California recently announced a 32 percent tuition increase at its state universities.  Ohio has held tuition to the lowest increase in the nation over the last three years.

That’s one important reason we now have 65,591 more Ohioans enrolled in our public colleges and universities than we had in 2006.

Next door in Indiana they are in the process of slashing 300 million dollars in state funds from their primary and secondary schools. In Georgia, school funding was cut by 440 million dollars. And at least twenty other states are inflicting serious cuts on their school systems.

But in Ohio, in Ohio, we are not going backward on our schools.  Using a combination of state and federal resources, we increased school funding by 5.5  percent in the last budget.

I believe in Ohio because we recognize that a superior education starting from the earliest age is the only path to sustained prosperity.

So we passed a historic education reform plan last year that gives our students and our taxpayers a system that is constitutional, accountable, and incomparable.

Using an evidence-based approach, we have defined the resources our students need inside and outside the classroom. We have redefined our expectations and our practices with one core purpose in mind – to prepare our students to become critical and creative thinkers who will thrive in the workplace and in life.

This month Education Week issued its annual report card on the nation’s schools.  The study looks at more than 150 indicators of school quality.

And Ohio’s schools now rank 1^st in the Midwest and 5^th in the nation. The report notes that Ohio’s standards for mathematics and science have been cited as a model by other states and that our assessment and accountability practices are among the best in the nation.

Our Closing the Achievement Gap initiative has raised expectations and achievements of African American students. Over the first two years of this effort, participating school districts achieved a more than 18 percent increase in the overall ninth and tenth grade promotion rate.

The highly respected Education Commission of the States studies schools and school systems across the country.  And they present an award for innovation to the state that has best improved education and put in place what they call “bold, courageous and nonpartisan new policies.” Just today the commission announced that their award for the most innovative education system in the country goes to…Ohio in recognition of the comprehensive education reform we created last year.

Let me say to our school children: We don’t know what your dreams will be – but our schools will give you the tools to make them come true.

We now better serve those who have selflessly served our nation.

We created the Ohio Department of Veterans Services to unite all our state veterans programs into one cabinet department.

With the Ohio G.I. promise, Ohio became the first state in the nation to open the doors of our state universities and colleges with free tuition for  veterans from across the country.

We’ve made military pensions free of state income tax.

Let these policies send a clear message to everyone who has worn this nation’s uniform – heroes are welcome in Ohio.

In honor of all the servicemen and women from Ohio who are bravely serving this day, please join me now in a moment of silent reflection. Let us pray for their safe return and for the comfort and strength of those who have suffered loss or injury.

…Thank you.

I am proud to say that in assembling a cabinet and in appointing judges, no Ohio governor has ever chosen applicants who better reflect the great diversity of this state.

Women now hold half of the seats in my cabinet.

Among the 40 judicial vacancies I have filled, more than one-third of our new judges are African Americans and more than forty percent are women.

One of my recent appointees represents the first Hispanic American to serve as an appellate judge in Ohio.   I am also proud to have appointed the first two Ohio judges who identify themselves as members of the gay and lesbian community. 

My friends, public servants should look like the public they serve.

Together we have put a steady hand on the reins of government – investing in things that are essential to our future and essential to who we are. We are building a government that works better and works on what’s most important to Ohio. A government that looks like Ohio, and acts for Ohio.

Ronald Reagan once said that “no government ever reduces itself in size. A government program,” he said, “is the nearest thing to eternal life we’ll ever see on this Earth.” Well,  today Ohio has 5,021 fewer state employees than when I took office. That’s fewer state employees than at any time since Ronald Reagan was in the White House.

To keep our budget balanced, we have had to make cuts but we are also making better use of the resources we do have.

It costs less to make a copy at the Ohio Environmental Protection Agency now because they purchased copy machines instead of leasing them, saving 19,000 dollars. The phone bill went down at the Department of Health because they are placing more calls over the internet instead of over traditional phone lines, saving 232,000 dollars. And because there truly is no such thing as a free lunch, we have saved 1.6 million dollars limiting where and when state money can be used to purchase food.  

It’s a penny here, a dollar there. Or, in the case of our Medicaid efforts, it’s 796 million dollars saved by billing third parties who should have been responsible for payment.

Quite frankly, we have tracked down waste and inefficiency like a hungry bloodhound.  Because our taxpayers deserve no less.

Now, not for a moment would I want to understate the serious budget challenges we have faced in Ohio. But I also think we should understand that responsible leadership makes a difference.

In November, the Pew Center on the States issued its report on state finances and state economies.  They made an apples to apples comparison of per capita revenue and spending across the 50 states.

And what did they find? Ohio is doing better than most states  at maintaining state revenue and balancing the budget.

Forbes magazine did a story just a few years ago about the states people most wanted to live in. Florida was right there at the top of the list. Today, Florida is right there at the top of a different list: the Pew Center’s list of what they call “States in Fiscal Peril.”

Florida has a higher unemployment rate than Ohio.

Florida has a higher foreclosure rate than Ohio.

Florida has lost vastly more state revenue and has had vastly greater budget gaps to fill than Ohio.

Now it’s true, in Florida they don’t have to shovel a lot of snow. But I would remind you what Rutherford Hayes had to say on the subject of weather.

He said, “The climate of Ohio is perfect…because a climate which requires industry to secure comfort is the very climate which produces the highest civilization.”

And by that standard, our civilization reached new heights earlier this month.

I believe in Ohio because while every state has taken a hit in this economy, quite frankly, we are tougher than most.

I believe in Ohio because our cities shine brightly as centers of commerce and culture.

I want to acknowledge the valuable work of the Compact with Ohio Cities task force.  I appreciate Speaker Budish making this important subject a priority, and I would like to see us move forward on several taskforce recommendations including Transportation Innovation Authorities and Land banks.

The taskforce has also called for action to help prevent foreclosures. Now, both the House and Senate have bills that would reduce foreclosures in Ohio.  Today I am asking members from both chambers, from both sides of the aisle, to bring together your best ideas and put a bill on my desk that helps keep Ohioans in their homes.

Ohio’s cities have very different economic identities. It’s time we formally recognized that fact and helped build on those strengths by designating Ohio’s Hubs of Innovation and Opportunity.

Already in Dayton and the surrounding region we have created an aerospace hub that recognizes the wide array of research and production that goes on there.

Today we are opening the hub process across Ohio.  This year, all of Ohio’s eight largest cities will have the opportunity to hold hub status.

As a hub, we will provide planning money and development assistance to further build connections between industry strengths anchored in the urban core and the surrounding region.

In short, we are going to help our cities and regions do more of what they do best.

You know, Ohio consistently ranks among the top 3 states in  average revenue per minority firm. And we are proud to be the home of opportunity.

I am pleased to announce today a new partnership with the Cleveland-based non-profit group JumpStart. Our pilot project in 21 Northeast Ohio counties will assist high-potential minority owned firms in developing business plans for sustained growth and in accessing angel investors and venture capital.

I believe in Ohio because Ohio agriculture is so important not only to our economy but to our way of life.

But we should do a better job getting Ohio-grown and raised foods onto the dinner tables of Ohio families.  Because Ohioans spend about 43 billion dollars every year on food, but only 3 percent of that spending goes to products from Ohio farms.  Moreover, too many Ohioans live in neighborhoods where fresh produce is hard to find or impossible to afford.

Today I am announcing the Ohio Neighborhood Harvest – the largest effort of its kind ever undertaken to map access to healthy and locally grown food. Working in partnership with local governments, the private sector and non-profits, we will use our findings to design a statewide strategy to improve access to Ohio- grown products and ensure that people in every neighborhood in Ohio have access to affordable, healthy food.  Because there shouldn’t be any neighborhood in Ohio where the only vegetable for sale is the pickle on a fast food hamburger.

Ohio is a soybean state. We are a corn state. We are a logistics state, situated right in the heart of it all. And we are the polymer state.

All these things make us the ideal location for an advanced biorefinery that converts farm output into food, fuel and biopolymers.

Toothbrushes, cell phones, printer cartridges – there’s a list of products as long as my arm that are made today from petroleum-based plastic that could be made from biopolymers.

And I’ll tell you this, there is nothing more important we could do for the security and sustainability of our nation than base our economy on the output of Midwestern farmers instead of Middle Eastern oil barons.

So to the companies drawing up plans to build a biorefinery – bring those plans to us.  Because with our agricultural output, our knowhow, and our location, we are sitting on a treasure and we will do everything in our power to tap it.

The Energy Gateway Fund. Hubs of Innovation. The Ohio Neighborhood Harvest.

I believe in Ohio because we will invest in the things we do exceptionally well. And we will create jobs.

Renewal of the Third Frontier. An advanced biorefinery.

I believe in Ohio because we will relentlessly pursue the future. And we will create jobs.

The most innovative schools in the country. Teaching people the skills they need to start a business. Insourcing Ohio jobs. Helping manufacturing workers show what they can do.

I believe in Ohio because we will invest in our people. And we will create jobs.

Small Business Growth Partnership. A groundbreaking agreement with P&G.

I believe in Ohio because we will unshackle those who make things. And we will create jobs.

The smallest state workforce in a generation. Hundreds of millions in savings and unprecedented efficiency.

I believe in Ohio because we will save taxpayers’ resources so that we can invest more in the things that matter most. And we will create jobs.

We are rebuilding an economic foundation so our middle class can once again stand tall.

Yes, we have been knocked down. There’s no doubt about that. But as the legendary football coach Vince Lombardi used to say, “It’s not whether you get knocked down, it’s whether you get back up.”

And Ohio will rise again. Because there isn’t a single thing wrong with Ohio that can’t be fixed by what’s right with Ohio.

I believe in Ohio and I believe in Ohioans.

I believe in Ohio because everything we’ve done today will help us  thrive tomorrow.

I believe in Ohio, because, with God, all things are possible.

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