[Congressional Record Volume 140, Number 47 (Tuesday, April 26, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]
[Congressional Record: April 26, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
THE FEDERAL RESERVE BOARD
Mr. DORGAN. Mr. President, my colleague, Congressman Dave Obey from
Wisconsin, and I, and 37 other Members of the House of Representatives
and 8 Senators have signed this letter which we have sent to Federal
Reserve Board Chairman Alan Greenspan.
Mr. President, I ask unanimous consent that the text of the letter be
printed in the Record at the conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 1.)
Mr. DORGAN. Mr. President, last week, I indicated I was going to come
to the Chamber and share with the Members of the Senate the names and
faces of those who helped make interest rate policy in our country. I
suggest we should do that because these are people who almost no one
would recognize and yet they play a significant role in the lives of
every American.
Before I introduce them, let me tell you about the letter we are
sending to Alan Greenspan, and the importance of this letter.
Thirty-seven Members of the House of Representatives and 8 Senators,
without a lot of circulation, have signed a letter that says we think
that you ought to share, Mr. Greenspan and Federal Reserve Board
members with the Congress and especially with the American people, what
kind of information you are looking at that justifies your decision to
increases in interest rates three times in this country in the past
several months.
Is inflation on the rise? No, inflation has gone down for 3 straight
years. Is there more capacity in this country to handle economic
growth? Of course, there is. We have plenty unemployed; we have
substantial amounts of plant and equipment that are not in use.
So what is it that suggests to the Federal Reserve Board that we
ought to have interest rate increases to put the brakes on the American
economy at exactly the time when we need a steady cruising speed to get
this economy up to speed and to produce new jobs for the American
people?
We would like the Federal Reserve Board to share with us and to share
with the American people what kind of information it looks at, what
kind of information it has to justify increasing interest rates on
three occasions at exactly the time when this country most desperately
needs continued economic growth.
This is monetary policy. We have a strong central bank called the
Federal Reserve Board that is unaccountable. It does what it wants. It
acts when it wants to. But that does not mean we have to be happy with
it. In my judgment, we ought to send strong signals to the Federal
Reserve Board that we disapprove.
These interest rate policies are wrongheaded. They will hurt this
country. They do, in fact, serve the interests and the constituencies
of the Federal Reserve Board, the big money center banks. They are much
more concerned about some potential injury from inflation. The Fed
leans in that direction, rather than for working families losing their
jobs.
The twin economic goals in America of stable prices and full
employment are not goals of equal weight, at least in the mind of the
Federal Reserve Board. That is clear from the actions of the Fed in the
past several months.
The Federal Reserve Board makes decisions with a Board of Governors.
The pictures of the Board of Governors are up here. We have two
additional appointees who have not yet been confirmed, but President
Clinton has named two additional people to the Board of Governors.
And the Open Market Committee down at the Fed contains these folks
who are presidents of the Regional Federal Reserve Banks.
Now, when they sit and meet as the Open Market Committee, they make
decisions and cast votes that help set interest rates in America. They
have a direct impact on every American family. These folks are not
appointed, and they are not confirmed. They are not accountable to the
political process at all. They are given their jobs by the Board of
Directors, the majority of which in every case are bankers in their
region.
Now, Mr. President, let me go down the list and you will see that
when folks out there talk about the need for refreshment and new blood,
nowhere is that more necessary than here. These are folks that have
been in that system forever.
But my point is not how long they have been there, my point is these
people should never cast a vote on money policy issues that are going
to affect the lives of American families, because they are
unaccountable. They have never been appointed to anything. They have
never been confirmed by anybody.
I am not suggesting they are not good people. I am just suggesting
that they ought not be making public decisions unless they are
accountable in the public marketplace in this democracy.
I have said before, I would just as soon my Uncle Joe was here
someplace. At least he is not an economist or financier. He has made
some products and done some business, and he has some notion about what
might be practical and good for this country. But we would not have
Uncle Joes serving on the Fed. These are all folks who are economists,
financiers, and bankers.
Boston, Richard Syron, $177,600 salary. He votes on interest rate
policy.
New York, William McDonough, $205,000 salary, economist, M.A.;
Philadelphia, Edward Boehne, $184,500 Ph.D., economics; Cleveland,
Jerry Jordan, $165,500, Ph.D., economics; Richmond, Alfred Broaddus,
$159,600 salary Ph.D., economics, Indiana University; Atlanta, Robert
Forrestal, law degree, a lawyer, $212,000; Silas Keehn, Chicago,
$221,700 salary, MBA, Finance, Harvard University; St. Louis, Thomas
Melzer, $190,900 salary, MBA, finance, Stanford; Minneapolis, Gary
Stern, Ph.D economics, Rice University, $175,200 salary; Kansas City,
Thomas Hoenig, Ph.D., economics, $159,800 salary; Dallas, Robert
McTeer, Ph.D., economics, $161,500 salary; San Francisco, Robert Parry,
$229,600 salary, Ph.D economics.
Here is when they joined the Fed system: 1964, 1970, 1967, 1968,
1968, 1981, 1985, 1982, 1973, 1968, and 1965.
Now the reason I bring this to the floor is to point out these are
bankers, financiers, and economists who have been in the Fed system for
a long, long time. They are paid a substantial amount of money. They
are not accountable to anyone. They go in a room, close the door and in
secret make decisions that affect all of our lives. Working with the
Board of Governors, forming the Open Market Committee, they have made
decisions to increase interest rates, at exactly the time when a good
many economists believe that there is no imminent sign of inflation on
the horizon. And what we most desperately need is to continue the
economic growth, continue creating jobs in our economy.
It is not my intention to bring pictures of these folks to the floor
to ridicule them or to make fun of them. They are professionals. They
have very important jobs. Many of them, perhaps most of them, perform
those jobs well.
I object, however, to having people perform jobs in the public sector
and to make decisions in the public sector that affect the lives of
every American and increase the cost of credit, if they are not in some
way, at some point, at some time accountable to someone in this
process. And that is not now the case.
I and others have introduced legislation in Congress that would make
them accountable and should make them accountable.
One of the pieces of our legislative initiative would be to say none
of these regional Fed presidents should ever cast a vote on the Open
Market Committee because they are not accountable to anyone. They do
not go through this process of confirmation. We ought not have
circumstances in which monetary policy is created and made by people
casting votes when those people casting votes are representing other
interests. Whose interests do they represent? They must satisfy a board
of directors. Who are their boards of directors? The majority control
of all of those boards of directors are their bankers in their region.
They would, I expect, as would most, faithfully serve their
constituencies. In this country we have traditionally, over 200 years
of financial history, had a battle between those who produce and those
who finance production. It has gone back and forth.
During some decades one side wins; other decades another side wins.
Early this century we created an organization called the Federal
Reserve Board. It was asserted that this would not become a strong
central bank, essentially unaccountable to anyone. But of course 80
years later it has become just that, a strong central bank,
unaccountable to anyone. As a result, in this battle between those who
produce and those who finance production, those who finance production
have an army of allies deep inside the bowels of the Federal Reserve
Board doing their work to put them on top. But that is not who needs to
be on top.
If this is in fact a contest, what we need on top for America's
future and for America's benefit is those who produce, those who
produce the goods and services of this country and those who risk the
money, not those who finance the production.
I come to the floor today, again with great respect, but with great
concern that we have a circumstance in this country today when, having
just come through a rather significant economic downturn and having
just now started to move this economy forward with several quarters of
economic growth, we have a bunch of central bankers who in a closed
room decide, ``Gee, we see something a lot of people don't. We see over
the horizon the danger of inflation. So in order to protect our
interests--our constituents, the bankers--we would like to move ahead
very quickly, more quickly than many in this country think is
advisable.''
I know there is not everyone of like mind when we discuss the Federal
Reserve Board. In fact, there is a priesthood of language about the
Federal Reserve Board that is so arcane and so complex a lot of people
do not want to talk about it. ``Money policy? Lord, we don't want to
talk about money policy.''
In the last century, they used to debate money policy in bars and
barbershops. Interest rates were a big deal and everybody felt they had
a stake in them. We debated interest rates. It was not too long ago, in
the 1960's, when William McChesney Martin, the head of the Federal
Reserve Board, was going to increase interest rates one-quarter of 1
percent and Lyndon Johnson invited him down to the ranch and almost
squeezed barbecue sauce out of him, I am told, convincing him that was
a dumb idea. A quarter of 1 percent, mind you, and it was a major
debate. It was on the front pages and it was a major contention between
the Johnson administration and the Federal Reserve Board.
We have become so weakened in our willingness to stand up and begin
to debate sensible monetary policy for all Americans that you hardly
hear a whimper these days or hardly a whisper by anyone when the
Federal Reserve Board takes actions that, in my judgment, are
counterproductive, to serve a constituency at the expense of my
constituency.
So I wanted to at least let people know who makes these decisions.
They are decisions I do not agree with but I want people to understand
who makes them so we all can begin to understand why it is important
for us to start making some changes in the structure of the Federal
Reserve Board.
No, I do not want to turn the Fed over to Congress. I do not want us
to be the ones who set interest rate policies in this country. That is
not my point. My point is, this is a central bank that is
unaccountable. Let us do an audit of the bank. Let us stop having
people vote on monetary policy who are not confirmed. Let us at least
have some notion that if you have a bicycle built for two in which
fiscal policy and monetary policy travel on the same vehicle, that one
is not pedaling hard uphill while the other is sitting on the back with
the brakes on. Let us decide there should be at least some formal
consultation process two or three times a year between those who are
running fiscal policy and those who are running monetary policy. That
is all many of us are asking when we say let us take a look at
reforming the Federal Reserve Board.
Mr. President, I am sure I and others will have more to say about
monetary policy in the months ahead. I do not know what the result of
the Fed's current actions will be, but I believe almost certainly they
are not going to help this economy. They are going to retard economic
growth.
We have people here who are largely trained in economics and finance.
I taught economics in college at one point very briefly. I am not
diminishing those who teach or study economics. I would observe this,
however. That 35 of the 40 leading economists in the country in 1990
predicted that the next year would be a year of economic growth. Of
course, it was the first year of the recession. And the Federal Reserve
Board probably uses economists like all of us do. If they say it, we
think maybe that is the case. But nobody quite understands what the
dynamics are that run this economy. The Federal Reserve Board seems to
think it is the carburetor that runs all this, but it is much more
complicated than all that.
I hope we would see a confluence of both fiscal and monetary policy
that would represent the array of all the interests in this country,
not just represent whoever happens to win in this decade in the
struggle between those who produce and those who finance production.
Mr. President, I yield the floor.
Exhibit 1
House of Representatives,
Washington, DC, April 25, 1994.
Hon. Alan Greenspan,
Chairman, Board of Governors of the Federal Reserve System,
Washington, DC.
Dear Mr. Chairman: On three separate occasions over the
past three months the Federal Open Market Committee has acted
to increase interest rates. We are writing to express our
concern over the Fed's actions, and to request that the Board
take no further action to increase interest rates until you,
as Chairman of the Board, have explained to Congress and the
American people the basis for the board's decisions.
During your appearances before Congress you have made
several points with which we agree. Among these is that long
term economic growth depends on low and stable long term
interest rates. Another point with which we concur is that
inflation and inflationary expectations are a primary threat
to low and stable long term rates.
You have testified that you believe low long term rates
could be protected, and inflationary pressures controlled,
with a slight increase in short term rates. The clear
implication of your testimony was that short term rates could
be increased just enough to preempt inflation without
increasing long term rates and imperiling the economic
recovery.
Just as clearly, this has not occurred. The Fed's actions
have driven up long-term rates, destabilized financial
markets and put the economic recovery at risk. Moreover,
these actions have been undertaken at a time when there are
no significant signs of impending inflation to justify your
decision to raise any rates.
Consumer prices are under control. At the supermarket, in
fact, grocery prices are actually falling. Most producers of
packaged items say that fierce competition will prevent price
increases in the immediate future. Many large marketers--like
General Mills--continue to slash prices.
Recent economic surveys reinforce this observation.
Inflation rates have actually been falling for the past three
years, from 3.1 percent in 1991, to 2.9 percent in 1992 and
2.7 percent in 1993. This trend continues, with inflation
measuring 2.5 percent last March.
Last year, unit labor costs--a major component of prices--
rose only 0.8 percent, the smallest increase in almost 30
years.
The Fed's recent pre-emptive strikes against nonexistent
inflation could be likened to a physician's prescribing
antibiotics without any specific sign of illness, on the
grounds that the patient will doubtless develop an infection
at some time in the future. Higher interest rates are not a
vaccine against inflation. They are a vaccine against
economic growth and job creation.
Just as there are no disturbing signs of inflationary price
increases over the horizon, there are no signs that the
economy is growing too fast. Currently, 8.5 million workers
are unemployed. At least 600,000 potential workers are too
discouraged to seek employment. And the combination of
productivity improvements and corporate ``downsizing''
creates even more economic slack.
In fact, according to your own data, U.S. industry is
operating at just over 83 percent of capacity, well below the
rate analysts consider inflationary. Worldwide, excess
capacity is even greater. Europe and Japan are in recession;
imports from those countries will continue to discourage U.S.
price increases even if our own expansion continues
unhindered by the Federal Reserve.
The benefits of this economic recovery for middle class
working families will be derived from more jobs at higher
wages. We cannot afford a two-tiered recovery or economic
policies that benefit those with bankable resources at the
expense of millions of Americans who were left out of the
expansion of the 1980's and continue to be left out of the
economic recovery today.
The Federal Reserve should not act to increase rates
further, until you, as Chairman of the Board of Governors,
have explained to Congress and the nation the basis for any
such decision.
Sincerely,
Byron L. Dorgan; Howard L. Berman; Louise M. Slaughter;
David Obey; Lee H. Hamilton; David E. Bonior, Kweisi
Mfume; Bill Richardson; Esteban E. Torres; Bob Wise;
Carolyn B. Maloney; John Bryant; Norman Y. Mineta;
Robert Torricelli; Jose E. Serrano; Vic Fazio; Martin
O. Sabo; Alan Wheat; Rosa DeLauro; Butler Derrick;
George Miller; John Conyers, Jr.; Sam Gejdenson; Barney
Frank; Nancy Pelosi; Maurice Hinchey; Dan Hamburg; Bart
Stupak; Carrie P. Meek; Dick Durbin; Cynthia McKinney;
Peter Barca; John Lewis; Patsy T. Mink; Gerald D.
Kleczka; Harry Reid; Edward M. Kennedy; Tom Harkin;
Kent Conrad; Joe Moakley; Norm Dicks; Chuck Robb; Dale
Bumpers; Jeff Bingaman; Anna G. Eshoo.
Mr. DORGAN. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. SIMPSON. Madam President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER (Ms. Mikulski). Without objection, it is so
ordered.
Mr. SIMPSON. I thank the Chair.
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