[Congressional Record Volume 140, Number 11 (Tuesday, February 8, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: February 8, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
        MAKEUP OF FEDERAL RESERVE NOT REPRESENTATIVE OF AMERICA

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Texas [Mr. Gonzalez] is recognized for 5 minutes.
  Mr. GONZALEZ. Mr. Speaker, for the past 2 years all of us have been 
hoping and working and worrying about how to restore economic growth. 
Meanwhile over at the Federal Reserve, they've been worrying about 
inflation. Now that there is the pale sunshine of possible healthy 
growth and we see a few tender shoots of consumer confidence, the Fed 
is determined to transform it into winter again--burying our hopes 
under the mudslide of higher interest rates. To the Fed, the 
possibility of prosperity is a threat.
  The Federal Reserve believes that if the United States actually 
starts moving forward, the result will be that nasty old devil of 
inflation. So their policy is to let us all know that zero prosperity 
with low inflation and plenty of fear and hardship, is much to be 
preferred to modest and healthy growth. So they follow a monetary 
policy that in effect, buries optimism under a mudslide. We will live 
through it, but we will all know who runs the show--and that is the 
Fed.
  But what is the Fed? It is, to be sure, our independent central bank, 
whose mission has always been to smooth out bumps in the economy that 
used to be called panics.
  The Fed was conceived by bankers and has always been dominated by 
people with the same narrow vision. Since its founding in 1913 the Fed 
has had 87 governors and 110 presidents at the 12 Federal Reserve 
Banks. Among all of these 197 extraordinarily powerful individuals 
there have been just two governors of color. Of the 110 Federal Reserve 
Bank presidents, there has been one woman and no--zero, none, nada, 
zilch--minority appointments. Among the 87 Governors of the Fed there 
have been 3 women and 2 persons of color--that is all.
  You have to wonder: Is only one type of human being suited to carry 
out the work of a Federal Reserve Bank? Is there only one type capable 
of being a Fed Governor? Surely there is a truly independent academic 
or a business man or woman out there who is competent to think about, 
analyze the economy and steer its direction. Surely there is somewhere 
in the United States a home builder or labor leader--maybe even an 
academic--who is perfectly fit to serve on the Federal Reserve Board. 
There may even be a female, Hispanic, Asian-American or African-
American fit to serve--in fact, there surely is.
  One of the real problems of the Federal Reserve is that its thinking 
is narrow, insular, and very often wrong. It cares only about its own 
power as an institution because it does not have to have the approval 
of anybody except itself. The Fed is not hurt by an infirm or failing 
economy; its mistakes are borne by the rest of us.
  The Fed's narrow vision, its incestuous, inbred governance, makes it 
prone to arrogance and error. The place needs airing out. There is a 
vacancy on the Board of Governors today; what kind of person the 
President selects to fill it is of more than passing importance.
  Today there is an opportunity to throw open at least one window of 
the Fed, by selecting someone other than the typical banker or banker's 
academic--by selecting someone who is in fact a competent observer of 
the economy, and who also looks a little more like the rest of us. As 
it is today, the Supreme Court, conservative as it is, has more women 
and minorities on it than the Fed has had in all its history. 
Presidents, even Republican Presidents, long ago recognized that 
diversity is good for the Supreme Court. The Fed today is a bastion of 
segregation; it is time that this changed. The President has the 
opportunity to make such a change, and I have urged him to do so in a 
letter I sent him today.
  I urge President Clinton to consider appointing someone who 
represents America as we know it today. It is imperative that any 
candidate be a free thinker who is willing to stand up for what he or 
she believes so as not to get swallowed up by the Fed's ``old boys 
network'' with its traditional disdain for public accountability and 
its cult of secrecy.
  I include for the Record the following items:

         U.S. House of Representatives, Committee on Banking, 
           Finance and Urban Affairs,
                                 Washington, DC, February 3, 1994.
     Hon. William Jefferson Clinton,
     President of the United States of America, The White House, 
         Washington, DC.
       Dear Mr. President: With the recent announcement of the 
     resignation of Vice Chairman Mullins from the Federal Reserve 
     Board, I want to express my great concern that the current 
     composition of the Federal Reserve does not remotely reflect 
     the diverse nature of the United States. Your commitment to a 
     Federal Government that ``looks like America'' must include 
     the Federal Reserve, as the decisions and actions of these 
     officials undoubtedly affect every American citizen.
       The Banking Committee staff recently released a study on 
     the status of Equal Employment Opportunity (EEO) and women 
     and minority representation at the Federal Reserve Board and 
     Reserve Banks. The report clearly demonstrates the lack of 
     diversity at the highest levels of the Federal Reserve, a 
     condition that unfortunately, also exists at the other 
     Federal banking regulatory agencies.
       I am also concerned that efforts to find competent 
     individuals with unique perspectives and backgrounds 
     essential to the development of monetary policy for a diverse 
     country will be jeopardized by limiting potential candidates 
     to only certain professions. I sincerely hope that you will 
     seize this opportunity to depart from the practices of the 
     past and appoint candidates that reflect both this nation's 
     diversity and your commitment to move the entire nation 
     forward.
       Thank you for your consideration. With best wishes, I am
           Sincerely,
                                                Henry B. Gonzalez,
                                                         Chairman.
                                  ____

                                     Committee on Banking, Finance


                                            and Urban Affairs,

                                                   Washington, DC.
       Washington, DC., February 8, 1994.--Chairman Henry B. 
     Gonzalez of the Committee on Banking, Finance and Urban 
     Affairs today urged President Clinton to ``seize the 
     opportunity'' to replace departing Federal Reserve Governors 
     Wayne Angell and David W. Mullins ``with candidates that 
     reflect this nation's diversity, something which you clearly 
     feel strongly about as evidenced by your own diverse 
     Administration.''
       In a letter sent to President Clinton today, Chairman 
     Gonzalez said, ``I want to express my great concern that the 
     current composition of the Federal Reserve does not remotely 
     reflect the diverse nature of the United States.''
       ``Since the Federal Reserve's establishment in 1913 there 
     have been 87 members of the Federal Reserve Board. Only three 
     have been women and two persons of color,'' Chairman Gonzalez 
     said. ``By any objective measure, this is totally 
     unacceptable and impossible to justify. I have no doubt that 
     the President agrees.''
       ``If Presidents had only treated the FED as they have the 
     Supreme Court, the FED today would at least be more 
     representative of the country. Conservative as it is, the 
     Supreme Court has more women and minorities on it than the 
     FED has had in all its history. Presidents, even Republican 
     ones, long ago recognized that diversity is good for the 
     Supreme Court,'' he said.
       ``The statistics show otherwise, however. There is 
     currently only one woman Federal Reserve Governor and no non-
     white, non-male president at any of the 12 Federal Reserve 
     Banks. Indeed, there has only been one woman and no minority 
     Bank president among the 110 Federal Reserve Bank presidents 
     since 1913. This pattern of discrimination is disturbing to 
     say the least,'' said Chairman Gonzalez.
       ``I urge the Administration to cast a wider net when it 
     considers candidates for Federal Reserve Governor. If yet 
     another white male is appointed, it could be years before he 
     vacates that spot. In the meantime women and minorities are 
     left to wait on the sidelines,'' he said.
       ``I am concerned that efforts to find competent individuals 
     with unique perspectives and backgrounds essential to the 
     development of monetary policy for a diverse country will be 
     jeopardized by limiting potential candidates to only certain 
     professions,'' Chairman Gonzalez wrote to the President.
       ``The sad truth is the Federal Reserve is an old boy's club 
     whose members are either bankers or friends of bankers. I 
     believe the FED's monetary policy decisions are made more out 
     of concern for its banking constituency than for the average 
     American. While some in the banking industry salivate over 
     the thought of achieving `zero inflation,' for the working 
     man or woman this could mean an increase in unemployment. I 
     find the FED's lack of sensitivity and compassion 
     disturbing,'' said Chairman Gonzalez.
       ``Numerous sectors of our society never get their voices 
     heard at the FED. This is why I am urging the President to 
     consider appointing future Federal Reserve Governors from the 
     ranks of labor, small business, agriculture, consumer and 
     community groups. A different perspective at the FED is long 
     overdue,'' Chairman Gonzalez said. ``Remember, it was the 
     bankers at the FED who in the early 1930s so tightened the 
     money supply that it helped make the Great Depression a 
     reality. Apparently, no one at the FED cared that the man on 
     the street was asking, `Brother can you spare a dime?'''
       ``The country has changed tremendously since the Federal 
     Reserve was established in 1913 when depression and 
     unemployment were not major considerations in setting 
     monetary policy. Today the country's economic recovery is 
     nascent at best and unemployment continues to rise. Whomever 
     the President appoints as a Federal Reserve Governor must be 
     cognizant of the impact his or her decisions can have on the 
     average American. To do any less would be irresponsible and 
     possibly damaging,'' Mr. Gonzalez said.
       ``Because price indices, which measure inflation, are so 
     inaccurate, we need individuals who will not panic when the 
     inflation rate is 2 percent or less, as it was for 1993. By 
     immediately shifting to slower money growth, this panic 
     attack can cause the money supply to again, stagnate. We need 
     individuals who have an objective of long-term economic 
     growth,'' Chairman Gonzalez said.
       ``I urge President Clinton to consider appointing someone 
     who represents America as we know it today. It is imperative 
     that any candidate be a free thinker who is willing to stand 
     up for what he or she believes so as not to get swallowed up 
     by the FED's `old boys network' with its traditional disdain 
     for public accountability and cult of secrecy.''

         [From the U.S. News & World Report, February 14, 1994]

                         Greenspan Goofs Again

                       (By Mortimer B. Zuckerman)

       Federal Reserve Chairman Alan Greenspan is at it again. He 
     played a key role in prolonging the recession on the '90s by 
     obstinately refusing to recognize that the slide had begun 
     and interest rates needed to come down. When the Fed did 
     belatedly reduce rates it was too little, too late. Rates 
     never fell to the level they did in the 1973-76 recession 
     when nominal short-term interest rates were actually lower 
     than inflation.
       Now, just as the economy is beginning to recover, Greenspan 
     declares that he will hike short-term rates to restrain 
     growth. Never mind that there is high unemployment and slack 
     in the economy. Yet again the economic realities are 
     subservient to the inflation neuroses of the Fed. Of course, 
     inflation must be fought--when we have it. But when the Fed 
     tilts at phantom inflation, subpar growth or recession 
     continues, wasting billions of dollars in idle material and 
     human resources.
       Greenspan grudgingly recognizes that we are indeed not 
     experiencing inflation. He rests his case on what he calls 
     ``inflationary expectations.'' The theory is that the squeeze 
     must begin soon or it will have to be harsher later on. He 
     believes that ``real'' short-term interest rates are 
     abnormally low. To calculate ``real'' short-term rates, he 
     proposes to subtract from nominal rates not real inflation 
     but this curiously subjective notion of ``inflationary 
     expectations.'' Since Fed fund rates are at 3 percent and the 
     stated inflation is 2.7 percent, we can only assume that he 
     judges ``inflationary expectations'' to be higher than real 
     inflation rates, thereby justifying higher short-term rates, 
     his weapon of choice to slow down the economy.
       Greenspan's ghost has little substance. First, most 
     acknowledge that the government's measure of inflation, the 
     consumer price index (CPI), overstates price increases. It 
     does not adjust fully or price hikes that reflect 
     improvements in quality. Nor does it adjust for consumers' 
     changed priorities. Goods and services in the CPI basket are 
     weighted using decade-old household spending patterns. For 
     example, some of today's most widely used items, lime home 
     computers, have fallen dramatically in price, but this is not 
     reflected in the CPI. The CPI's fixed weighting also ignores 
     the fact that consumers often buy private-label and discount 
     goods when big-name brands become too expensive. Even the Fed 
     acknowledges that the CPI may be up considerably less than 
     the published 2.7 percent rate.
       Does the 5.9 percent GDP growth for the last quarter of 
     1993 change the outlook for inflation? Hardly. Capacity 
     utilization has not approached the ``flash point'' that has 
     signaled inflationary pressures in the past. Unit labor 
     costs, the dominant long-term influence on prices, actually 
     dropped about 2 percent last year because of higher 
     productivity, and this trend will continue because of 
     downsizing and efficient new technologies that enable fewer 
     employees to produce more. Commodity prices have barely moved 
     up. Indeed, the price of oil has been dropping in recent 
     months and will remain low through much of 1994.
       There is no sign of a tightening labor market that would 
     presage higher wages. Unemployment has been underestimated by 
     government numbers. The just revised unemployment rate, which 
     stood at 6.7 percent in January, assumes a suspiciously large 
     improvement in part-time work and self-employed personnel--a 
     euphemism for recently fired white-collar workers who are 
     scrambling for consultancies. So total employment remains 
     soft.
       Finally, recent growth simultants, like home building and 
     consumer durables, could falter with higher interest rates. 
     The fourth-quarter surge, moreover, was powered by the 
     special inventory buildup in vehicles and the recovery from 
     Midwest floods--one-time happenings. Besides, the 
     deflationary impact of the spending cuts and tax cuts enacted 
     last year has not yet taken its toll.
       The Fed would have been better off sitting on its twitching 
     hands. After four years of subpar performance, the economy--
     and the American people--deserve a break. The president and 
     Congress did their part through dramatic reductions in the 
     budget deficit. Now, it's time for the Fed to do its part by 
     keeping interest rates low.

                          ____________________