[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.

                          ____________________