[Congressional Record Volume 142, Number 21 (Tuesday, February 20, 1996)]
[Senate]
[Pages S1269-S1274]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               THE CHAIRMAN OF THE FEDERAL RESERVE BOARD

  Mr. HARKIN. Mr. President, I would like to take a little time this 
morning to speak about an issue that has simply not received the kind 
of scrutiny and attention that it deserves. That is the renomination, 
or possible renomination of Alan Greenspan as Chairman of the Federal 
Reserve Board. Arguably, perhaps, the second most powerful person in 
America today with regards to our economy and unemployment and interest 
rates and how fast our economy will grow or how slow it will grow is 
the Chairman of the Federal Reserve Board.
  Some have said the most important person is the President, but I 
guess to my way of thinking I think perhaps the Federal Reserve Board 
Chairman is the single most important and most powerful person in 
America today regarding decisions about what our economic life is going 
to be like in the months and few years ahead.
  I say that not to denigrate the office of the President, but simply 
to point out that because of the downsizing of Government, because of 
budget cuts, because of shifting more power from the Federal Government 
to the States, because of the diminishing role of the Federal 
Government in the economic life of our country--I do not mean to get 
into a debate of whether that is good or bad. We have those debates all 
the time around here. The fact is it is happening. Thus, it devolves to 
the Federal Reserve Board in their deliberations about interest rates 
and discount rates and Federal fund rates to decide just what is going 
to happen in the economy. That has more of an impact on the economic 
life of America today than anything the President can do and arguably 
more important than anything we can do here in the Congress of the 
United States. Yet, this position of so much power and so much 
authority is kind of kept in the dark corners. We have not shown much 
sunlight on the Federal Reserve, or the chairmanship of the Federal 
Reserve and on who should be the Chairman.
  Mr. Greenspan is finishing a 4-year term as Chairman. His time is up, 
I believe, in just a few days. It will be up to the President, under 
the law, to either reappoint Mr. Greenspan or to choose someone else to 
send to the Senate for confirmation as the new Chair of the Federal 
Reserve Board.
  I make the argument today, as I did over a week ago, Mr. President, 
on the 

[[Page S1270]]
floor of the Senate, that Mr. Greenspan's time has come and gone, that 
his feet are firmly planted in the past and that his policies are no-
growth policies. They are policies of high interest rates, no growth 
that is going to throttle our economy. Mr. Greenspan's policy has 
been--and I think a close scrutiny of his comments and his tenure both 
at the Federal Reserve and years ago on the Council of Economic 
Advisers will show--that here is an individual that has little concern 
for unemployment or what is happening to average Americans. Like a 
laser beam, his sight is only on inflation and the bond market and 
nothing else.
  I believe, Mr. President, that has worked to the detriment of our 
country.
  Mr. President, it was 50 years ago today that President Truman signed 
the Employment Act of 1946 into law--50 years ago this day. That is why 
I feel my words today are so important. That measure that signed into 
law 50 years ago today said that we should make it a matter of national 
policy to help create and maintain conditions to promote maximum 
employment, maximum production and purchasing power in our country. 
Note that it said ``maximum employment,'' to promote it as a national 
policy.
  Mr. President, there is a lot of rhetoric about the need to promote 
strong families, but when one talks about strong families, having a 
decent job is a crucial component of whether or not you have a strong 
family.
  To further the goals of the Employment Act of 1946, Congress passed 
the Humphrey-Hawkins Act in 1978, which by law set out a requirement 
that the Federal Reserve have a goal to maximize full employment along 
with stable prices and moderate long-term interest rates. In other 
words, what we were saying is, you do not just take one; they all have 
to be kept in balance: full employment, stable prices, and moderate 
long-term interest rates.
  Mr. President, we ought to be reaffirming those goals, but 
unfortunately some now say we should limit them instead. They want to 
prescribe low or no inflation as the sole criterion, as the sole cure 
for all of our economic ills. Well, you can have zero inflation and you 
can have it with very high unemployment. I do not think that is what 
our country wants.
  My colleague from Florida, Senator Mack, has a bill to provide that 
the single goal of the Federal Reserve should be long-term price 
stability with only a secondary concern for the effects of employment. 
The bill says the single goal of the Federal Reserve should be long-
term price stability. In other words, Senator Mack's bill basically 
takes that part of the Humphrey-Hawkins Act of 1978 that says that we 
should have a goal to maximize full employment and takes that out of 
appropriate consideration.
  Imagine that, that we should not be concerned about unemployment. I 
tell you I find that mind-boggling, that someone would even suggest 
that we should not properly consider unemployment, we should only 
consider long-term price stability.
  I might understand that a Senator or Congressman or more than one 
might prefer that option as a matter of policy, propose it at least for 
debate. I must admit I have not spoken personally to my friend Senator 
Mack--and he is my friend, the great Senator from Florida--I have not 
spoken with him personally about it. Maybe he only wants this open for 
debate. I do not know. But the disturbing part is not that Senator Mack 
introduced this bill, the disturbing point is that Alan Greenspan, the 
Chairman of the Federal Reserve, has endorsed that legislation.
  Now, lest anyone think I am making this up, I have the hearing 
transcript where Mr. Greenspan basically, in open hearings, said he 
endorsed that legislation. Mr. President, here is the hearing record. 
This is a verbatim transcript from September 22, 1995, before the 
Senate Banking, Housing, and Urban Affairs Committee. I will just read 
the portion about Mr. Greenspan. It says:

       Your bill [referring to Senator Mack] which we fully 
     support--

  The rest does not make much sense. The most important, he said, 
``Your bill, which we fully support.''
  Mr. Greenspan has come out in support of taking out of consideration, 
in setting their policies, any concern for unemployment.
  We will look now at the history. Between February 1994 and February 
1995, 1 year, he raised interest rates by 3 full percentage points. 
Why? Well, in the fear that inflation might happen. But when asked, Mr. 
Greenspan himself said there was no inflation. Yet he raised interest 
rates 3 percentage points. I might point out, Mr. President, that Mr. 
Greenspan raised those interest rates five times before the election of 
1994--five times he raised interest rates. The economy came to a 
grinding halt. Wages were depressed. People were not hiring. Business 
could not invest. The economy became more stagnant in 1994.
  I might also point out there has been some talk lately that the Fed 
is loosening up and starting to reduce interest rates. I can imagine 
Mr. Greenspan wanting to get reappointed as Fed Chairman and wanting to 
look good so he brought interest rates down a little bit. In 1 year, 
February 1994 to February 1995, Mr. Greenspan raised interest rates 3 
percentage points. From February 1995 to this February, they have only 
gone down three-quarters of 1 point--three-quarters of 1 point. I think 
that says it all.
  Again, he raised interest rates, no inflation in sight. But because 
of Mr. Greenspan's narrow vision, he damaged our economy and limited 
the opportunity of millions of Americans to secure employment. Rather 
than viewing rising incomes of average Americans as a good thing, Alan 
Greenspan used it as a threat of future inflation.
  Mr. President, inflation today is at its lowest point in 30 years, 
with only 1 year being an exception. Unemployment is now at 5.7 percent 
and has been below 6 percent for 17 months. I might point out that the 
law stipulates as a goal 4 percent unemployment, not 6 percent.
  Mr. President, unemployment is high, just below 6 percent while 
Inflation is down. All is not well in our economy. Real incomes of 
average families have been falling. This past Sunday's Washington Post 
had a chart which showed the family incomes from 1979 to 1993. The top 
20th of our Nation had their incomes rise by 29 percent, better than 2 
percent per year for the top 5 percent of our country. However, those 
in the middle saw their standard of living drop by 2.6 percent. The top 
5 percent had their incomes rise by 29 percent; the middle had a drop 
of 2.6 percent. Those families in the bottom 40 percent of our 
population saw their incomes actually fall during that period of time--
not go up, but actually fall. For the bottom 20 percent, they fell by 
more than 1 percent a year; the top 5 percent in income in our country 
increased their incomes by better than 2 percent a year. The bottom 20 
percent saw their incomes fall by 1 percent a year over that same 
period of time.
  It has not always been that way. From 1966 to 1979 all groups saw 
rising incomes of more than 1 percent a year--all groups. Each one-
fifth of the population saw real, genuine gains above 1 percent per 
year in sharing in America's growth. Not anymore. A few at the top are 
making more and more and the people in the middle are either staying 
stagnant or they are going down. Now, there are probably a lot of 
reasons for this change. One of the reasons we are seeing this lack of 
income growth across the board is a purposeful, deliberate, slow-growth 
policy pushed by the Chairman of the Federal Reserve Board. Always 
fearful of inflation, even when little threat exists, he has used his 
position to maximize interest rates relative to inflation, smothering 
any hint of substantial growth.
  Mr. President, Mr. Greenspan cannot have it both ways. He cannot 
raise interest rates by 3 percent, say that there is some threat of 
inflation out there but he cannot put his finger on it, and then turn 
right around as he is raising those interest rates and suggest that the 
Consumer Price Index possibly overstates inflation by as much as 1 to 
1.5 percent. How can he say that inflation is threatening and then turn 
around and say that the Consumer Price Index overstates it by 1 to 1.5 
percent when inflation is only about 2.5 percent per year right now. 
Yet Mr. Greenspan has tried to have it both ways.
  The President and the CBO are looking at the economy right now 
growing at about 2.5 percent over the long term. 

[[Page S1271]]
 We had a big debate here last year, Mr. President, about what the 
economy is going to do in the future, what our budget ought to be and 
everything. If the economy can grow by an extra point, say 3.5 percent, 
the impact on Americans' standard of living over a period of time would 
be huge. How much? Trillions of dollars, trillions of dollars in 
additional income for America, thousands of dollars for the average 
family a year, if we had a progrowth policy at the Federal Reserve 
Board.
  Even if we cannot get to 3.5 percent, if we could get it to 3 
percent, we could wipe out our deficit, balance our budget, provide 
better wages for Americans, more job opportunities and probably reduce 
unemployment. But it is going to take a different person at the helm of 
the Federal Reserve to make this happen.
  Now, I had in the past called upon the President to nominate a 
different person, someone with a more progrowth policy to head the 
Federal Reserve. I am pleased that the President has suggested we need 
a debate about the ability of the economy to perform at a higher growth 
rate over the long term. As I understand it, from reading the 
newspapers last week, the President wanted to appoint Felix Rohatyn to 
be Vice Chairman of the Federal Reserve. I do not know this, but I 
assume the President felt that with Mr. Rohatyn, who is a progrowth 
individual, there would be good debate at the Federal Reserve about the 
need for progrowth policies. But there was solid opposition from some 
on the other side of the aisle here in the Senate on the Banking 
Committee, and they said no way would they permit Felix Rohatyn to be 
approved and to go through for confirmation.
  I find that very disturbing, Mr. President, that a person of the 
caliber of Felix Rohatyn is turned down before we even have one 
hearing, turned down by people on the other side of the aisle, I think, 
because they did not want this debate to take place. That is a shame. I 
think it is a great loss. If America is to achieve greatness, we have 
to allow the economy to grow faster.
  Now, bond traders on Wall Street will always be pushing for a tighter 
monetary policy. I understand that. But the President and the Chairman 
of the Federal Reserve Board need to look more broadly at the needs of 
the whole economy and the welfare of American families who need an 
improved standard of living and not just the welfare of the bonds 
traders on Wall Street.
  Mr. President, so I do not seem like a voice crying in the 
wilderness, I will read parts of an article by the editor in chief of 
U.S. News & World Report, Mortimer Zuckerman, February 12, 1996, 
entitled ``Chairman Greenspan, Retired.''
  I want to read a couple parts of this, from the February 12, 1996, 
U.S. News & World Report:

       The Federal Reserve Board cut the federal funds rate last 
     week, right? Wrong! Yes, nominal rates went down a minuscule 
     one quarter of 1 percent.

  Mr. Greenspan looked good saying he is cutting interest rates. Mr. 
Zuckerman is pointing out they really did not go down.

       But real rates, adjusted for inflation, actually have 
     increased because the inflation rate has fallen faster over 
     the past several months than has the Federal funds rate. 
     Running scared from a phantom inflation, Alan Greenspan's 
     ``dear money" leadership has caused the Fed to exert a 
     monetary choke hold on one of the weakest economic recoveries 
     since World War II, at the cost of billions of dollars in 
     lost output and tens of thousands of uncreated jobs.

  Mr. Zuckerman has it right. He goes on:

       Just to keep real rates where they were, the federal funds 
     rate would have had to have gone down by as much as a full 
     percentage point. Instead, we have a fed funds rate that is 
     still nearly 3 points above the most recent quarterly 
     inflation rate, much higher than normal by historical 
     standards. What's more, this is not only the wrong battle, it 
     is the wrong target. Higher interest rates hurt manufacturing 
     more than services, yet manufacturing inflation has not been 
     a problem. In fact, we are experiencing the worst 
     manufacturing slow down since 1991, and the indicators 
     suggest even more weakness ahead. Just last month, for 
     example, nonfarm employment fell by 201,000 jobs. No wonder 
     more and more businesspeople, from the National Association 
     of Manufacturers to Main Street and Wall Street, are so 
     unhappy with Federal Reserve policy.

  Mr. Zuckerman goes on, in another part of his article, to say this:

       The jobless recovery of the early 1990s has become the 
     wageless expansion of the mid-1990s. We have no wage pressure 
     on prices. We also have no import inflation because of a 
     stronger dollar. At the consumer level, spending is very 
     weak, reflecting stagnant personal income and real wages. 
     Retail sales growth, which averaged 7.8 percent during 1994, 
     declined to less than 5 percent in 1995. In the final quarter 
     of the year, consumer spending was growing at an annual rate 
     of 1 percent or so; adjusted for inflation, that's an actual 
     decline. As a result, so-called demand-pull inflation--when 
     hot consumer spending pulls up prices--is nonexistent. What 
     we do have is a buildup in inventories, especially of durable 
     goods, that is bound to slow the economy even more.

  Last, Mr. Zuckerman closes his article by saying the following:

       We must do better. The fear of inflation has proved to be a 
     chimera. Short rates have come down too little and too late 
     to boost a weakening economy. The country does not have to 
     endure the effects of the Fed's misjudgments in 1995 being 
     extended into 1996.
       Alan Greenspan's term as Fed chairman would not survive a 
     Democratic Congress. It ought not survive a Republican one 
     either. Congressional Republicans should recognize that none 
     of their programs to cut back government will survive a slow-
     growing economy that fails to provide Americans with good 
     jobs and a sense of optimism about the future. The 
     inflationary obsession of the Fed is not healthy; it is 
     reactionary. It is cramping out todays and sacrificing our 
     tomorrows.

  Mr. President, I ask unanimous consent that the full text of Mr. 
Zuckerman's article be printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

             [From U.S. News & World Report, Feb. 12, 1996]

                      Chairman Greenspan, Retired

                       (By Mortimer B. Zuckerman)

       The Federal Reserve Board cut the federal funds rate last 
     week, right? Wrong! Yes, nominal rates went down a minuscule 
     one quarter of 1 percent. But real rates, adjusted for 
     inflation, actually have increased because the inflation rate 
     has fallen faster over the past several months than has the 
     federal funds rate. Running scared from a phantom inflation, 
     Alan Greenspan's ``dear money'' leadership has caused the Fed 
     to exert a monetary choke hold on one of the weakest economic 
     recoveries since World War II, at the cost of billions of 
     dollars in lost output and tens of thousands of uncreated 
     jobs.
       Just to keep real rates where they were, the federal funds 
     rate would have had to have gone down by as much as a full 
     percentage point. Instead, we have a fed funds rate that is 
     still nearly 3 points above the most recent quarterly 
     inflation rate, much higher than normal by historical 
     standards. What's more, this is not only the wrong battle, it 
     is the wrong target. Higher interest rates hurt manufacturing 
     more than services, yet manufacturing inflation has not been 
     a problem. In fact, we are experiencing the worst 
     manufacturing slowdown since 1991, and the indicators suggest 
     even more weakness ahead. Just last month, for example, 
     nonfarm employment fell by 201,000 jobs. No wonder more and 
     more businesspeople, from the National Association of 
     Manufacturers to Main Street and Wall Street, are so unhappy 
     with Federal Reserve policy.
       The traditional central bank role is to take away the booze 
     when the party gets too raucous. But what we have today is a 
     glass of water served to a gathering of teetotalers. There is 
     no inflation to fight. The nominal rate is about 2 percent 
     for the last quarter of 1995, and even that is overstated by 
     as much as 1 percentage point. In short, inflation is 
     declining instead of rising, as it usually does at this point 
     in a business cycle--a clear tip-off that the economy is not 
     in good shape. Even the Fed's key indicator of inflation--the 
     time it takes for vendors to make deliveries of capital 
     goods--is stable, in contrast to the stretching out that 
     occurred at the end of 1994. Unit labor costs (wages and 
     benefits adjusted for productivity), which make up two thirds 
     of a product's price, are no higher today than they were a 
     year ago--the first time we have had zero growth in this 
     index for 30 years.
       The jobless recovery of the early 1990s has become the 
     wageless expansion of the mid-1990s. We have no wage pressure 
     on prices. We also have no import inflation because of a 
     stronger dollar. At the consumer level, spending is very 
     weak, reflecting stagnant personal income and real wages. 
     Retail sales growth, which averaged 7.8 percent during 1994, 
     declined to less than 5 percent in 1995. In the final quarter 
     of the year, consumer spending was growing at an annual rate 
     of 1 percent or so; adjusted for inflation, that's an actual 
     decline. As a result, so-called demand-pull inflation--when 
     hot consumer spending pulls up prices--is nonexistent. What 
     we do have is a buildup in inventories, especially of durable 
     goods, that is bound to slow economy even more.
       Meanwhile, the deficit continues to decline and in 1996 and 
     1997 will create more fiscal drag because no agreement has 
     been reached on the budget, thereby squeezing discretionary 
     government spending even more harshly. Exports are 
     constrained by the weakness of our biggest trading partners. 
     
[[Page S1272]]

       Only corporate investment is booming, boosting supply more 
     rapidly than consumption--another clear antidote to any 
     inflationary pressure. But it isn't enough: Merrill Lynch is 
     justified in lowering its forecast for U.S. economic growth 
     to less than 2 percent for 1996, the first half being 
     particularly weak.
       We must do better. The fear of inflation has proved to be a 
     chimera. Short rates have come down too little and too late 
     to boost a weakening economy. The country does not have to 
     endure the effects of the Fed's misjudgments in 1995 being 
     extended into 1996.
       Alan Greenspan's term as Fed chairman would not survive a 
     Democratic Congress. It ought not survive a Republican one 
     either. Congressional Republicans should recognize that none 
     of their programs to cut back government will survive a slow-
     growing economy that fails to provide Americans with good 
     jobs and a sense of optimism about the future. The 
     inflationary obsession of the Fed is not healthy; it is 
     reactionary. It is cramping our todays and sacrificing our 
     tomorrows.

  Mr. HARKIN. Mr. President, as Mr. Zuckerman has said, we need to stop 
chasing the ghost of inflation. We need to appoint a respected 
individual who will take a balanced view about the needs of our economy 
and not place a choke hold on our Nation each time it strives to move 
forward with any real speed. Since Alan Greenspan became Chairman of 
the Federal Reserve, the economy has grown by a dismal 2.1 percent, 
compared to 3.4 percent from 1959 through 1987.
  Again, the cost is in the mega-billions of dollars, that it has cost 
our economy because of Mr. Greenspan's position. Many economists are 
now looking at growth for 1996 at around 2 percent with the current 
Federal Reserve policies.
  Mr. President, there is another meeting of the Open Market Committee 
on March 26. In reading the popular press, there is some indication 
that Mr. Greenspan has kind of leaked out that there could possibly be 
another cut in interest rates. What, a quarter of a percent? As Mr. 
Zuckerman says, the last quarter of a percent actually was not a cut at 
all. It needed to go down by a full percentage point. So, even if Mr. 
Greenspan reduces interest rates by another quarter of a percent, which 
he is probably going to do, it does not mean that much.
  One last thing. We should also be concerned about Mr. Greenspan's 
seeming inability to see upcoming recessions, even when he is right in 
the middle of them. Again, what does the record show?
  Alan Greenspan was the Chairman of Gerald Ford's Council of Economic 
Advisers. I understand that he is the author of the famous WIN button. 
Those of us who started our political careers about that time remember 
the button: WIN, Whip Inflation Now. Everybody wore those. President 
Ford heeded Alan Greenspan's advice as he derailed job-creation 
measures and our Nation plunged into a recession.
  We need to focus on Mr. Greenspan's time as Chairman of the Council 
of Economic Advisers in 1974 and 1975. It was clearly a time of high 
inflation, mainly caused by the first oil shock. But it was also a time 
of sharp recession.
  As the Nation was moving into recession, Alan Greenspan was, 
reportedly favorable to tax increases as a means to fight inflation. He 
urged President Ford to kill legislation designed to create jobs and 
stimulate the economy.
  A few months later, when the recession was fully in bloom, he changed 
his mind and wanted tax cuts. But that was too late for many families, 
as unemployment exploded from 5.4 percent in the summer of 1974, 
passing 8 percent by June of 1975. I am not saying Alan Greenspan 
caused the recession of 1974. What I am saying is he was so focused on 
inflation he could not see it coming, and he proposed just the opposite 
remedy, and that is what President Ford followed.
  More recently, in 1990 and 1991, as Chairman of the Federal Reserve, 
Alan Greenspan was very slow in reducing interest rates. Last month the 
Wall Street Journal reported on the just-released Fed transcripts of 
1990. Mr. President, the transcripts of Federal Reserve Board meetings 
are kept secret for 5 years, and then they are released. We just got 
the transcripts of the meetings back in 1990. On January 24, 1996, the 
Wall Street Journal had an article by David Wessel, talking about those 
transcripts. Here is what the article said.

       Newly released transcripts of closed-door deliberations at 
     the Fed show that Mr. Greenspan didn't see a recession 
     unfolding until very late that year.
       ``There are forecasts of thunderstorms and everyone is 
     saying, `Well, the thunder has occurred and the lightning has 
     occurred and it's raining.' But nobody has stuck his hand out 
     the window,'' Mr. Greenspan told fellow Fed policymakers on 
     Oct. 2, 1990.
       ``And at the moment,'' he added, ``it isn't raining. . . . 
     The economy has not yet slipped into a recession.''
       The recession, the official arbiters at the National Bureau 
     of Economic Research determined much later, began in July 
     1990, a month before Iraq invaded Kuwait.

  And yet, by October, Mr. Greenspan still could not see that we were 
in a recession.
  There is more in the Wall Street Journal article I would like to 
read, Mr. President, but I see others on the floor who would like to 
speak. It talks about the meetings that were held in 1990 and 1991, 
when we were clearly in a recession. Yet, Mr. Greenspan could not see 
it.
  ``By December 18,'' almost 6 months after the recession started, 
``Mr. Greenspan finally had enough data to conclude that a recession--
then nearly 5 months old--had begun.'' Again, quotes from his minutes.

       ``We have severe recessionary pressures,'' he told the Open 
     Market Committee,'' but recessions always end.
       ``At some point,'' he said confidently, ``we're going to 
     come out of this.''
       He was right, the recession officially ended in March 1991.

  Mr. President, I ask unanimous consent this entire January 24, 1996 
Wall Street Journal article be printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

             [From the Wall Street Journal, Jan. 24, 1996.]

Economy--Even the Fed's Greenspan Is Fallible When Trying To Predict a 
                               Recession

                           (By David Wessel)

       Washington.--Federal Reserve Chairman Alan Greenspan, often 
     caricatured as a dour pessimist, didn't see the gathering 
     storm clouds when he peered into his crystal ball in 1990.
       Newly released transcripts of closed-door deliberations at 
     the Fed show that Mr. Greenspan didn't see a recession 
     unfolding until very late that year.
       ``There are forecasts of thunderstorms and everyone is 
     saying, `Well, the thunder has occurred and the lightning has 
     occurred and it's raining.' But nobody has stuck his hand out 
     the window,'' Mr. Greenspan told fellow Fed policymakers on 
     Oct. 2, 1990.
       ``And at the moment,'' he added, ``it isn't raining. . . . 
     The economy has not yet slipped into a recession.''
       The recession, the official arbiters at the National Bureau 
     of Economic Research determined much later, began in July 
     1990, a month before Iraq invaded Kuwait.
       The Fed cut short-term interest rates one-quarter 
     percentage point in July 1990, explaining the move as a one-
     time attempt to offset the effects of a credit crunch. But 
     despite concerns expressed inside and outside the Fed about 
     the weakening economy, Mr. Greenspan resisted cutting rates 
     again until Oct. 29, 1990, after Congress and President Bush 
     agreed on a deficit-reduction accord. That quarter-point rate 
     cut was followed by three more of the same size before the 
     end of the year.
       At the time, the Fed was criticized by some--and by many in 
     the months that followed--for responding too sluggishly to a 
     deteriorating economy. But in public comments, Mr. Greenspan 
     has been reluctant to confess he erred, given the information 
     available to him at the time.
       The transcripts, released yesterday after the customary 
     delay of five years, show that the Fed was contemplating 
     interest rate increases for much of the earlier part of 1990.
       By summer, signs that a credit crunch was hurting the 
     economy proliferated. For that reason, Mr. Greenspan 
     persuaded the Fed to cut interest rates by \1/4\-percentage 
     point. Still, in early July, he told Fed officials that the 
     reluctance of businesses and consumers to borrow and bankers 
     to lend, ``which I believe historically would almost 
     always have dumped us into a recession, failed to do so. . 
     . .''
       Although other Fed officials were worried about the 
     economy, they didn't anticipate a recession either. ``It's 
     clear to me the economy is weaker than as projected,'' Fed 
     governor David Mullins said in July, ``but there are no 
     compelling signs that we are headed for a recession.''
       At a pivotal meeting on Aug. 21, however, there was growing 
     sentiment for cutting interest rates to stimulate the 
     economy, but also concern about the inflationary pressures 
     created by rising oil prices. With Mr. Greenspan's blessing, 
     the Fed agreed that interest rate cuts were likely soon.
       But the chairman, backed by Fed staff economists, continued 
     to resist the notion that the U.S. had entered a recession. 
     ``I think there are several things we can stipulate with some 
     degree of certainty,'' he told the Fed at the Aug. 21 
     meeting, ``namely that those who argue that we are already in 


[[Page S1273]]
     a recession . . . are reasonably certain to be wrong.''
       They weren't wrong, of course. But Mr. Greenspan argued 
     that there was little the Fed could do to help the economy 
     because everything hinged on oil prices. ``I would suspect at 
     this point,'' the chairman said, ``that the Pentagon has more 
     policymaking clout than we do because it's fairly obvious 
     looking around the world that if oil [prices] go up and oil 
     [production] comes down, that will have profound effects. . . 
     .''
       Although Mr. Greenspan had the leeway to cut rates sooner, 
     he waited until Congress approved a deficit-reduction accord 
     in October. Even then, Fed economists remained optimistic 
     about the economy. ``Incoming data . . . have not provided 
     clear-cut indications that we are headed toward even a mild 
     recession,'' chief Fed forecaster Michael Prell told 
     officials in October, three months after the recession had 
     begun.
       By mid-November, the Fed staff was losing confidence in its 
     sunny forecast. ``The signals of a downturn still are 
     limited,'' Mr. Prell told officials, ``but there certainly 
     are some now.'' Mr. Mullins, then Fed vice chairman, no 
     longer was mincing words. ``I think we have a recessionary 
     psychology in full bloom,'' he declared.
       But even as Mr. Greenspan told Fed officials in a telephone 
     conference call on Dec. 7 that he had just cut short-term 
     interest rates to help stimulate the weak economy, he sounded 
     skeptical that it had slid into recession. New factory orders 
     still weren't showing the typical recession pattern, he 
     argued, though he continued to worry about damage from the 
     credit crunch.
       By Dec. 18, Mr. Greenspan finally had enough data to 
     conclude that a recession--then nearly five months old--had 
     begun. ``We have severe recessionary pressures,'' he told the 
     Open Market committee. ``But recessions always end.''
       ``At some point,'' he said confidently, ``we're going to 
     come out of this.''
       He was right. The recession officially ended in March 1991.
  Mr. HARKIN. Mr. President, we face another period of high risk for 
the economy to plunge into recession. Do we want Alan Greenspan, whose 
main focus has always been on inflation, to be in charge of Federal 
Reserve policy? I think the answer is clearly no.
  There are two vacancies on the Federal Reserve Board. As I said 
earlier, the President wanted to appoint Felix Rohaytn to one of those 
positions, making him Vice Chairman of the Board. Mr. Rohaytn is a man 
with an extremely distinguished career. Most notably, he is credited as 
the guiding hand that led New York City from the edge of default and 
economic ruin back to health.
  I remember that debate. I was in the House of Representatives at the 
time. I represented a very rural district from Iowa. I listened to Mr. 
Rohaytn at the time as he made his case for the New York City bailout, 
as it was called, and for the Federal Government and for the Congress 
to assist in that process. It was not in my best interests, 
representing a rural district, to vote for New York City. In fact, I 
took some pretty bad political hits for doing so. But I believed it was 
the right thing to do.
  Congress passed it. New York City was able to pay its bills and avoid 
default. It solved many of its problems with a growth policy initiated 
by Felix Rohaytn.
  He believes in growth. I find it hard to believe that anyone would 
want to oppose his nomination. This is particularly true when the 
discussion was to have him as a counterweight to Alan Greenspan's 
orientation to focus on inflation; to have, as I understand it, with 
the present one, to have a debate about the policy of the Fed. But 
opposition from some on the other side of the aisle has, frankly, 
killed the nomination of Felix Rohaytn.
  President Clinton said last Friday that we need a debate within the 
Federal Reserve to see if the economy can grow faster than the 
conventional wisdom of a 2.5 percent average, without triggering 
inflation. We need that debate. That debate will not take place under 
Alan Greenspan.
  The question of taking the Federal Reserve's heavy hand of high 
interest rates off the throttle of our economy is crucial to the long-
term growth of our Nation. But to not even allow an appointment to move 
forward, of Mr. Rohaytn, so we can engender that debate, start that 
debate, is absolutely wrong.
  As I said in my remarks last week, Mr. Greenspan's feet are firmly 
planted in the past. Mr. Greenspan's focus is not on average, hard-
working Americans. It is not on our families in the middle-income 
brackets of America. It is not on the manufacturing sector that has to 
invest and create the kind of climate that will employ people and let 
wages go up. No, Mr. Greenspan's focus is not there. His focus is some 
phantom inflation out there, and as long as inflation can be kept at 
the lowest possible position all is right with the world in Mr. 
Greenspan's view. But as we have said in the past, Mr. President, it is 
not just inflation that we have to be concerned about. We have to be 
concerned about unemployment and economic growth. And Mr. Greenspan is 
not concerned about either one of those.
  So, again, Mr. President, I call upon President Clinton to pick 
someone else to be Chairman of the Federal Reserve Board, someone who 
has a concept of growth and what growth will mean to our economy and 
the incomes of average Americans. We can have a debate this year. I 
think we will have it. I hope it will happen in the Presidential races. 
I hope that we have it in all of the Senate and House races which are 
up this year--about what the proper rate of growth ought to be in this 
country.
  Should it be 2.5 percent? Should it be 2 percent, or can we 
reasonably expect to grow at a faster rate? I happen to come down on 
the side of progrowth. I believe our economy has all of the 
underpinnings to grow at least 3.5 percent a year. I might even make 
the argument that it can grow faster than that without triggering 
inflation.
  We are truly in a global economy. Markets abroad can send in goods to 
this country, and even services, to keep any kind of inflation under 
control and under check. Rising wages will not push up inflation 
because the rising wages will just barely keep up with the rising 
productivity of American workers. Our American workers are more 
productive than ever before. Yet, their wages are not keeping up with 
their productivity. If we let wages go up a little bit, it will kind of 
keep up with productivity. That means people have a little bit more 
money to go out and buy some goods. That means that our economy will 
grow.
  We are not having that debate. We can have that debate. As I said, I 
hope we do have it in the Presidential races, and I hope we have it in 
all of our races this year. But if we have an individual in charge of 
the Federal Reserve who believes that growth cannot be above 2 or 2.5 
percent, you can have all of the debates in the world, because the 
Federal Reserve is independent and they are under Mr. Greenspan's 
control to throttle down on that economy. We will see a no-growth 
policy from the Federal Reserve regardless of what we might say in our 
individual campaigns, or what we in the Senate or the House might want 
to do in the future.
  So, Mr. President, I think it is unfortunate that the debate about 
the policies of the Fed and about the leadership of the Fed is not 
undergoing more scrutiny than it is in our news media today. We are all 
wrapped up, I know, in the New Hampshire primary, and before that in 
the Iowa caucuses--who is ahead? Who is behind? --and a flat tax, and 
all the other stuff. Yet, the single most powerful position in America 
that has to do with our economy, what our future is going to be like, 
what our kids' future is going to be like, what our incomes and wages 
and job possibilities are going to be like, no one is talking about it.
  Thank God that Mortimer Zuckerman at least wrote an editorial in U.S. 
News & World Report. You see little about it in the Washington Post and 
newspapers around the country. Everyone just assumes that Mr. Greenspan 
is going to be renominated and take the position. I do not make that 
assumption. And if Mr. Greenspan is in fact renominated by the 
President, he will come here for hearings.
  I intend, if that is the case in the coming weeks, to delve more into 
Mr. Greenspan's background and his philosophy and what he has done in 
the past, and why his past actions should warrant a no vote on the 
Senate floor for his reconfirmation, if in fact the President 
renominates him.
  So I say--not a warning, simply as a statement of fact--that this is 
one Senator who is not going to allow Mr. Greenspan, if he is 
renominated, to sail through here without any debate. I intend to make 
it an issue, and I intend to talk about it and talk about his 
stewardship and to talk about his no-growth policies, because I think 
it is that important for our economy and for our country. 

[[Page S1274]]

  Mr. President, I yield the floor.
  Mr. LEVIN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Michigan.

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