[Congressional Record Volume 140, Number 59 (Friday, May 13, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 13, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                       THE FEDERAL RESERVE BOARD

  Mr. DORGAN. Mr. President, there was a comedian named George Gobel, 
who has departed us, who used to talk about tuxedos. He said, ``Did you 
ever feel as if the world was a tuxedo and you were a pair of brown 
shoes?''
  I suppose all of us have felt that way at one time or another, sort 
of out of step, not quite in sync.
  Let me talk about the brown shoes of the American economy at the 
moment, the Federal Reserve Board.
  I come here to talk about the Federal Reserve Board this afternoon 
because I am upset at what the Federal Reserve Board is doing to this 
country.
  The American society is the most open society in this world. We make 
democratic decisions. The American people together in this process we 
call a democratic government. We make democratic decisions: about the 
future, about taxing and spending, where we invest, how we invest, and 
in whom we invest. Sometimes those decisions are agonizing and 
wrenching and awful.
  Last year, we worked through the decision about reducing the budget 
deficit. We debated for weeks about where to cut spending, and how to 
raise taxes. It passed by one vote. A reduction of $500 billion in the 
Federal deficit over 5 years passed by one vote in this Chamber.
  That was the democratic process. In fact, the American people were 
involved in that, ringing our phones off the hooks, coming to our town 
meetings, imploring us to vote this way, that way, or the other way. 
The construction of fiscal policy by this Congress about how to get our 
economy in order and how to get it moving again by creating jobs and 
opportunity and growth. That was the democratic process at work.
  Contrast that with what is going on with monetary policy. Monetary 
policy, the decisions about money and interest rates, is made downtown 
in a building by the Federal Reserve Board. That is not a part of an 
open society, not a part of a democratic process. It is closed, 
secretive, unresponsive and unaccountable to the American people.
  In recent months, the Federal Reserve Board has taken action on three 
occasions to raise interest rates, and we were told yesterday and we 
are told again today--at least it is rumored--that the Federal Reserve 
Board will probably again act to raise interest rates next week.
  I want to cite some news events of this week to describe why I am 
upset with the Federal Reserve Board. Today the Wall Street Journal, 
``Economy Seems to Soften a Bit in Latest Data. Wholesale Prices Fall 
One-Tenth of One Percent. Retail Sales Drop Eight-Tenths of One 
Percent. Jobless Claims Rise.''
  This morning from the Associated Press, ``Consumer Prices Edge Up 
Modest One-Tenth Of One Percent In April.'' That is today's news. This 
is going to be bad for Wall Street because when there is good news for 
the economy on inflation, Wall Street goes into apoplectic seizure. We 
have this thing all turned around. Bad news means stocks increase, good 
news means stocks decrease. That is the way it has been the last few 
weeks. In fact, Hobart Rowen wrote about that the other day in the 
Washington Post. In Rowen's column he says,

       Wall Street is out of sync with Main Street. Although some 
     Americans have not been able to find employment, many have. 
     Inflation is low, job creation is strong, and consumer 
     confidence is healthy, yet Wall Street is reacting 
     negatively.

  As Rowen says,
       Wall Street won't wait until inflation is a fact or even a 
     serious threat. Perversely, the best of good news after a 
     long recession, people are again finding jobs, becomes bad 
     news for the markets--meaning Wall Street.

  The Federal Reserve Board now seems prepared to take action once 
again to increase interest rates. Today's news tells us that what they 
have done so far has begun to put the brakes on the American economy 
just at a time when we needed to move this economy along and get it up 
to cruising speed. It is operating nowhere near capacity. Just when we 
need to get it to cruising speed to employ people and to give people 
opportunity, the Federal Reserve Board puts the brakes on this economy 
by raising interest rates and is now prepared to raise interest rates 
again. Who are they accountable to? No one. Why are they doing this? 
Inflation, they say. Show me the evidence of inflation.
  Yesterday, ``Wholesale Prices Fall One-Tenth of 1 Percent.'' Today, 
``Consumer Price Index, Only One-Tenth of 1 Percent Increase.''
  I say to the Federal Reserve Board: Where do you see evidence of a 
new wave of inflation? Share it with the American people. Why do you 
not tell us what you are doing and why, instead of just asking us to 
pay the higher interest rates that you demand down at the Federal 
Reserve Board.
  I brought to the floor again today a picture of the Federal Reserve 
Board Board of Governors and the regional Fed Presidents. I have done 
that because at least with respect to the regional Fed Presidents, they 
are not confirmed, and not appointed. But they sit in a room with a 
closed door, and make decisions in secret with the Board of Governors 
about money policy and interest rates. They make decisions that affect 
the lives of every constituent I represent in the State of North 
Dakota. The lives of all Americans are affected by the decisions these 
people make and they are accountable to no one. They go in the room, 
and shut the door; Lord knows what information they look at, and they 
make decisions.
  What decision are they making these days? That inflation is just 
around the corner and what we must do is increase interest rates and 
put the brakes on the American economy? What a bunch of nonsense. Are 
they willing to risk their jobs on those decisions? No, not hardly; not 
these folks. In fact, let us talk about their jobs.
  Mr. Parry from San Francisco. Mr. Parry is, I am sure, a wonderful 
man. I have never met him. I would not know Mr. Parry from a cord of 
wood. He says this morning in the paper--he is a voting member of the 
Federal Reserve Board's open market committee. He was in Tucson, AZ, 
yesterday. I guess they have a big territory over there at the San 
Francisco regional Fed. He says he remains cautious about inflation. 
Slack in labor and product markets has all but evaporated, and although 
we have advanced in the progress in taming inflation, he said in 
written remarks, ``We still have a long way to go.''
  I guess what Mr. Parry says to us today is he still sees inflation 
around the corner and inflation is just down the track. He makes 
$230,000. He is a Ph.D. economist, part of that Fed system. He has been 
in the system since 1965, for those who are interested in term limits 
these days in the political system. He and his friends will sit around 
a table and vote in secret about whether or not somebody in my State 
gets a job. That is a plain fact. They control one-half of the economic 
policy. They conduct it in secret, and they are pursuing a wrong-headed 
approach that is slowing down this economy at exactly the time when we 
need more investment, more jobs and more growth.
  So what do we do about all this? What we do is we decide to take this 
out of the secret room of the Fed and give some semblance of monetary 
policy decisions back to the American people. A century ago we used to 
debate the interest rate questions in the bars and barber shops all 
across this country. It used to be important. People had a role in 
deciding what interest rates were going to be. Not anymore. It is these 
folks who have the role, and they are not accountable to the American 
people.
  I am not suggesting that the folks whose pictures I brought to the 
floor to at least give the American people the first opportunity to see 
who they are, who is casting these votes, who is making these 
decisions, are bad people. They represent the banks. That is their 
constituency. When they close the door and make their decisions, they 
are making their decisions based on their constituents. And I guarantee 
you their constituencies are the boards of directors, the majority of 
which are bankers, that put them on these regional Fed bank 
presidencies. That is a plain fact.
  For two centuries we have had a conflict between those who produce 
and those who finance production, and at times those who produce do 
just fine and at times those who finance get the upper hand. What we 
have today with the Federal Reserve Board and a strong, unaccountable 
central bank is people in charge of monetary policy and interest rate 
policy who represent the vestiges of established wealth. They have a 
hair trigger on inflation. Why? Because inflation erodes the value of 
those who now hold wealth. I understand that. I would like zero 
inflation as well. But we need a balance of fighting for stable prices 
and fighting for full employment. And I do not want people in charge of 
monetary policy who always decide on the side of those who hold wealth. 
What about deciding for a change on the side of those who need jobs, 
those who hold jobs, and those who want jobs?
  Second, let me make another, I think, important point that has not 
been made, at least very often. The Fed claims that they see inflation 
just around the corner. That is the basis of what I think is their 
irrational behavior, they see inflation just around the corner. But is 
there another motive? Can you see inflation in these data that are 
published today and yesterday and this week? ``Consumer Prices Up One-
Tenth Of 1 Percent.'' Can you see inflation around the corner? 
``Producer Prices Down One-Tenth Of 1 Percent?'' Or is there another 
motive? Might the other motive be that we are all paying, all of us in 
America, for the excesses in the financial system?
  Let me read for the Senate another headline of this week. This is not 
unusual. I could have brought a ream of headlines just like this.

       Pennsylvania Company Links Losses to Derivatives.
       Another company in the industrial heartland has suffered a 
     large loss on financial derivatives sold by Bankers Trust New 
     York Corp. Air Products and Chemical Inc., an Allentown, PA, 
     makers of industrial gases, said today it lost $96.4 million 
     before taxes on five derivative contracts that were 
     ``unacceptable and inconsistent'' with the company's 
     policies. Its after-tax loss was $60 million.

  Bankers Trust, Air Products, billions of dollars on derivatives, some 
of them on proprietary trading in the banks-- they might just as well 
open up a desk in the lobby and put in some sort of a roulette wheel. 
That is what this derivatives trading is about. Much of it is pure 
gambling inside America's banks.
  That, too, is an outrage. But I think there is another motive with 
respect to what the Fed is doing. I think the Fed is taking a look at 
the stock market. I think the Fed is taking a look at the enormous 
growth of derivatives, and I think the Fed is deciding to increase 
interest rates--not related necessarily to what they see as inflation--
although that is the excuse they give. I think the Fed is deciding they 
also want to try to dampen the speculation in the financial sector in 
this country. Meanwhile, those in the productive sector will pay the 
cost. All Americans will pay the cost of an interest rate policy that 
slows down the economy if, in fact, the motive is to try to send a 
message to those who are involved in speculation in the finance 
industry.
  What do we do about all this? What I hope we will do about all this 
is we will start to put enough pressure on these people, the only 
people who will make those decisions in secret, behind closed doors, 
just down the road. I hope we will put enough pressure on these people 
to alter their decision next week, a decision that many predict will, 
once again, increase interest rates a quarter to a half of 1 percent. I 
hope that is the first step. All of us ought to be outraged by a 
Federal Reserve Board system that is out of step and out of touch.
  I have brought with me some comments by a member of the Board of 
Governors, Lawrence Lindsey, Ph.D., economist, Harvard University, 
Board of Governors. Here is what he said:

       Legislators typically tend to favor higher economic growth 
     at the expense of inflation as an election approaches and are 
     more willing to accept tighter monetary reins just after 
     they've been reelected,

  Lindsey said in an April 22 speech at the University of Chicago.
  For Mr. Lindsey's benefit, I might say to him, I am not up for 
election until 1998. This is not about election politics for me. The 
question for me is, what about the economic health of this country? For 
whose benefit are we managing this country's economic growth; the big 
money center banks or the folks out there looking for a job? That is 
the question for Mr. Lindsey and his friends, and the Board of 
Governors and the presidents of the regional Federal banks. Mr. Lindsey 
also says, as he speaks about Members of Congress:

       We are ordinary human beings with our own individual 
     interests. The desire to be reelected is quite a normal part 
     of their individual preference functions. When about to face 
     the voters, legislators can't easily tolerate the pain 
     accompanying policies aimed at producing long-term benefits.

  Referring to the need to keep price pressure under control.
  It is really helpful to have Mr. Lindsey's advice coming from the 
temple of money downtown, but I am unimpressed by someone as cloistered 
as those who sit behind the walls of the Federal Reserve making 
interest rate policy in a vacuum, so out of step and so out of touch, 
telling us that we want to see some economic growth and some 
opportunity in this country because we want to be reelected.
  I do not understand what they are thinking down at the Fed, but I 
want economic growth not for me; I want economic growth for my State 
and this country. I want people to go into a job market that is 
expanding. I want kids to come out of college and look for a job that 
they can find because our companies are expanding and producing jobs 
and producing opportunities.
  But what is happening, as we see from the newspaper headlines this 
morning, is exactly what most of us expect to happen, and I would guess 
exactly what the Fed wants to happen, and that is the economy is 
beginning to slow down: ``Economy Seems to Soften a Bit in Latest 
Data.'' It will meet the fondest hopes of the folks down at the Fed. 
That is precisely what they want.
  They see inflation around the corner, despite the fact that there is 
no evidence of it, and they have produced no evidence to us or the 
American people to justify it. The result is they increase interest 
rates, hoping to slow down the economy, and the result is an economy 
that is slowing down and a whole lot of folks will be put out of work 
and a lot of other folks cannot find work.
  I guess these folks sitting down at the Fed are not worried about 
their jobs. I say to Mr. Lindsey, you do not have to worry about the 
next election; you are not elected. You do not have to worry about your 
job because no matter how soft this economy gets, you are not going to 
lose your job. But there are a lot of folks out there dependent on what 
you do, on what we do, and on what others do to promote opportunity in 
this country. You do them a disservice by pursuing wrongheaded monetary 
policy that is cutting economic growth in this country.
  I am hoping that in the coming few days, we will have more people in 
Congress and more people around the country decide to speak up about 
the Federal Reserve Board. I have introduced now for 4 years--and there 
exists before this Congress and this Senate--Federal Reserve Board 
reform legislation. We ought to change the Fed; we ought to open it up. 
The best way to blind these folks is with sunlight. Open the door, send 
some light into the Fed. Let us see what they do. We have had people 
putting voice stress analyzers on the pronouncements of the Fed 
Chairman in order to find out what they did in a closed room. That is 
how bizarre it has become in recent years. I say open the door; shine 
the light on this process.
  Second, do not let any of the regional Federal bank presidents ever 
vote on monetary policy. Only the Board of Governors should vote. They 
are the only ones appointed and confirmed in the democratic process.
  Let us audit the Federal Reserve Board. They have spent over $1 
billion. Let us have an audit of the Federal Reserve Board.
  There are a series of reform steps we could and should take to bring 
this kind of dinosaur into this century in terms of Government that 
responds to people. No, let us not give interest rate policy to the 
folks down at the corner bar. I am not suggesting that is the way 
interest-rate policy ought to be managed, but let us at least provide 
some basic accountability so we have a Federal Reserve Board that is in 
step and in turn with what the needs of this country are, not just the 
needs of the money center banks.
  Mr. President, that concludes my statement. I will have more to say 
about the Federal Reserve Board next week. I say that just to alert 
them.

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