[Congressional Record Volume 142, Number 43 (Tuesday, March 26, 1996)]
[Senate]
[Pages S2841-S2844]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       THE FEDERAL RESERVE BOARD

  Mr. DORGAN. Mr. President, let me claim my 15 minutes, and I ask the 
Chair to notify me when I have consumed 10 of the minutes.
  Mr. President, I came to the floor today with Senator Reid from 
Nevada to discuss a preliminary report that has been completed, after 
some 2 years of work, by the General Accounting Office. This report 
takes an extensive look into the activities and operations of the 
Federal Reserve Board and its regional banks. The Federal Reserve was 
created in 1913. It is kind of a dinosaur in our Government in an age 
of openness, an institution shrouded in great secrecy. But in 1913, the 
Congress created the Federal Reserve Board. That was the year in which 
Henry Ford built the first assembly line for the Model-T and paid 
people $5 a day to work to construct automobiles.
  That was a long time ago, but some things do not change very much. 
The Federal Reserve still exists. It still sits as a house on a hill 
with a large fence around it and invites no one to peer in to see what 
they are doing. They make a substantial amount of money. They make 
their own spending decisions, and they are accountable only to 
themselves.
  Senator Reid and I asked the GAO to do an investigation and 
evaluation of

[[Page S2842]]

how the Fed works: What does it spend its money on? How well does it 
spend its money? How accountable is it?
  We have some 200 pages in a report that represents the work of nearly 
2 years by the GAO. This is not a final report. It is a preliminary 
report that is now awaiting comment by the Federal Reserve Board.
  The Senator from Nevada and I decided to release it now only because 
last week it was made available to us, and this week the Senate 
scheduled a hearing on Chairman Greenspan's renomination. We felt that 
the Senate Banking Committee at least ought to have the benefit of what 
is in this report prior to the hearing.
  Let me discuss a couple of points in this report and ask Senator Reid 
to discuss a couple of other points, because I think this will provide 
a substantial amount of information that the American public will be 
interested in.
  You talk about the Federal Reserve Board and people's eyes start 
glazing over, and there starts to develop a large fog around the 
subject. This is largely because it is a central bank, accountable 
largely only to itself. It conducts monetary policy by itself and does 
so behind closed doors, with great secrecy.
  Now, what did the GAO find? A couple of things. First of all, let me 
discuss the surplus account that exists at the Federal Reserve Board. 
The Federal Reserve Board has a surplus account of about $3.7 billion. 
In fact, the surplus account has increased well over 70 percent in the 
last 6 years. They have increased their surplus, which they set aside 
to absorb potential losses, by 79 percent over this period. So they 
have a cash stash of $3.7 billion in a surplus account.
  This account presumably is to cover their losses. But the Federal 
Reserve Board has not lost money in 79 consecutive years and is not 
going to lose money in the future. Last year, it had a $20 billion-plus 
profit, it had expenses of about $2 to $3 billion, and it turns the 
rest back to the Treasury. But it still keeps a small surplus--small by 
their definition, large by my definition. I come from a town of only 
300 people, and there billions mean something.
  What does the GAO say about that? The GAO talks about this surplus 
account by suggesting that the downward adjustment to the size of the 
surplus account, or perhaps its elimination, would result in a positive 
budgetary impact, and so on and so forth. Then they point out that when 
they asked the Federal Reserve Board why they had this and how they 
determined what they needed, they said it is arbitrary. There is really 
no criteria used by the Fed to how much they need in the surplus 
account. They just squirrel away as much as they want.
  This is the taxpayers' money, $3.7 billion squirreled away in a 
concrete edifice that houses the Fed. The GAO recommends, and I 
recommend--and we will introduce legislation--that this money be 
returned to American taxpayers and not stashed as a surplus in an 
institution that has not had a loss in 79 years and is not going to 
have a loss in the next 79 years.
  There are other areas in this GAO report that also describe the 
operation of the overall Federal Reserve system. The Federal Reserve 
Board largely conducts monetary policy. While I disagree with its 
monetary policies these days, I do not think that the monetary policy 
ought to exist here in the well of the Congress. I think it ought to be 
separate and apart.

  But I do not agree with the Fed when it believes its mission in life 
is to be a set of human brake pads designed to slow down the American 
economy. They happen to believe the American economy should not grow 
more than 2.5 percent. If it grows more than that, somehow we are going 
to produce more inflation they think.
  They are dead wrong. In the global economy, inflation is going down, 
not up; wages are going down, not up. So I think their monetary policy 
is wrong, and they are inhibiting growth in this country and slowing 
down the American economy.
  However, that is not what the GAO looked at. The GAO evaluated the 
other functions of the Fed. What does it spend its money on? Less than 
10 percent of the activities of the Federal Reserve System are spent on 
monetary policy activities. The rest of it is bank supervision, check 
clearing, and a whole range of other things.
  The Fed has counseled this country to cut its expenditures, slim 
down, downsize, and streamline. What has the Fed done? The Fed has 
counseled that America go on a diet and it has decided to over-eat. 
Here you have a circumstance where this shows what has happened between 
1988 and 1994 according to the GAO: Personnel compensation up 53 
percent. Benefits, that is, benefits per employee, increased about 90 
percent during the same period; equipment and software up; buildings 
up.
  In fact, they built one building, and they estimated when they 
decided to build the building they would need a 7,000-square-foot 
lobby. That is a pretty good-sized lobby. When they finished the 
building, they had a 27,000-square-foot lobby. You ought to see a 
picture of this lobby with no chairs--27,000 square foot. And that also 
is in the GAO report.
  If you take a look at the expenditures of the Fed, you will see this 
line, which is the blue line, and from 1988 to 1994, the Fed, which 
writes its own checks and decides how much it wants to spend--nobody is 
suggesting that it ought to do this or ought not to do this. It decides 
how much of its money it wants to keep--had a 48 percent increase in 
expenditures, according to the GAO. During the same period, the 
Consumer Price Index increased 25 percent--almost double the Consumer 
Price Index in terms of the increase in costs down at the Fed.
  I just indicated a couple of those items, but the cost per employee 
of the increases in benefits, employee benefits of the Fed increased 90 
percent during the 6-year term.
  So again, the suggestion by the Fed that the rest of the Government 
tighten its belt is apparently advice lost on the Fed itself. If you 
take a look at a whole range of these issues, the amount of money spent 
on personnel, on buildings, on benefits, and a whole series of issues 
like that, what you will find is a Federal Reserve Board that has not 
had a previous audit but a board for which an audit would discover that 
it seems to be growing while the rest of the Government is shrinking.
  Maybe we ought to bring the Federal Reserve Board into the same 
realm. I am not talking about bringing monetary policy functions into 
this realm, but maybe the non-monetary policy functions of the Federal 
Reserve ought to be subject to annual appropriations just as are all of 
the other functions of Government.
  Certainly, we ought to now proceed, based on what we will find in 
this report, to decide there should be every year, each and every year, 
an independent audit of the Federal Reserve Board. We ought to, based 
on what we have discovered in this report, decide that we should have 
this $3.7 billion taken out of the surplus account that has been 
squirreled away by the Fed itself and brought back into the stream of 
income that is available to the American taxpayers. Those are the 
things that we ought to do together. There are a whole series of 
recommendations that Senator Reid and I will jointly employ in the 
decision on future legislation as a result of this GAO report.
  Let me conclude my portion of this where I began. The Federal Reserve 
Board is a dinosaur; in the rest of Government, we are now discussing 
openness. In the Federal Reserve Board, we still have the shroud of 
secrecy. In the rest of the Government, we have the requirement for 
financial accountability. At the Federal Reserve Board, it is: We will 
spend what we need to spend, and we will make that judgment.
  While the rest of the Federal Government is shrinking with fewer 
employees, fewer now than at any time during the Government's history 
going back to John F. Kennedy, the Federal Reserve Board system is 
growing. That is why I think this GAO audit suggests it is out of step 
and does need some correction.
  Mr. President, let me yield the floor. My colleague, Senator Reid, 
from Nevada, will discuss some of the other results of this GAO 
evaluation.
  The PRESIDING OFFICER. The Senator from Nevada is recognized.
  Mr. REID. Mr. President, will the Chair advise me when I have used 12 
minutes of my time.

[[Page S2843]]

  Mr. President, this report that was released yesterday has taken 
about 2 years for the General Accounting Office to conduct. The 
findings of this report, if centered on a Member of Congress or an 
agency of the Federal Government, would be, for lack of a better word, 
scandalous.
  It is interesting to note the apologists that are around this country 
for the Federal Reserve Board. Take, for example, the Wall Street 
Journal. They wrote an article on the release of this report today, but 
it was an apology for the Federal Reserve Board. The Wall Street 
Journal looks at the Members of Congress and Federal agencies and 
anything they do, they do not dot an ``i'' on the right place on the 
page, do not cross the ``t,'' they not only report it, but they write 
an editorial about it.
  This $3.7 billion? The huge cost overruns? Not a word said in today's 
Wall Street Journal, but it is very typical for that newspaper.
  This report raises legitimate questions about fiscal management 
within the Federal Reserve System. Some important questions should be 
answered as we proceed, Senator Dorgan and I, with our legislative 
agenda as it relates to this General Accounting Office report. And I 
think there should be some questions asked during the confirmation 
proceedings relating to Alan Greenspan.
  We have been told by the General Accounting Office that this is the 
most in-depth study they have ever done of the Federal Reserve Board. 
In all the time I have been in Congress, certainly it is the most in-
depth study by far that has ever been done of the Federal Reserve 
Board.
  I agree the Federal Reserve should be independent, and I think that I 
will do what I can to make sure it is independent, but that does not 
mean the Federal Reserve Board and system does not need accountability. 
It needs accountability, as indicated in this 200-page report that has 
taken 2 years to prepare by the General Accounting Office.
  Mr. President, I think what the Federal Reserve Board has been saying 
is, ``Do not do as I do, do as I say,'' because they say that 
Government has to cut back. What do they do? They significantly 
increase their spending in all areas. Take, for example, the operating 
costs of the Federal Reserve System. Supervision and regulation, from 
1988 to 1994, increased 102 percent--102 percent. An annual audit 
certainly is the least we should get out of this. We should know what 
is happening in the Federal Reserve System. A ray of sunlight should 
begin shining on the Federal Reserve System. It may not need to be part 
of our sunshine laws that were so popular a decade or two ago, but it 
needs a ray of sunshine shining on it. It would instill greater public 
confidence in our banking system. It is important.
  I have talked only a little bit about the increased operating costs, 
but the costs certainly have skyrocketed. And we are talking about big 
money. From 1988 to 1994, the costs have gone up from $1.3 billion to 
$2 billion. That is a lot of money. Operating costs for the Federal 
Reserve have grown at twice the rate of inflation. Fed operating costs 
jumped 50 percent between 1988 and 1994.
  Mr. President, I have behind me here a visual aid, and I think it is 
pretty clear, if we look at what has happened with travel within the 
Federal Reserve System, it has gone up 66 percent. We see what has 
happened to the Federal Government. It has gone up 4 percent; staffing 
levels of the Federal Government, minus 2 percent. We see what has 
happened with the Federal Reserve System. It is incredible.
  These costs are a story in and of themselves. From 1988 to 1994, the 
Fed salary costs increased by 44 percent. Interestingly, also, salaries 
of reserve bank presidents are significantly greater than the Chairman. 
They vary. Somebody in San Francisco makes more than somebody in St. 
Louis. It is interesting; there is no conformity as to how much they 
make. They can kind of pay themselves, I guess, what they want. And 120 
top Fed officials earn more than the Chairman of the Federal Reserve 
System, Alan Greenspan. Within the Federal Reserve System, their 
benefits increased by 89 percent. Whereas in the rest of the Federal 
Government, we have been reining in the costs, theirs have gone up 
almost 90 percent.

  I might say, when we talk about the travel expenses increasing by 66 
percent--but they travel in style. In 1994, the Fed's travel 
expenditures were over $42 million. They are permitted to be reimbursed 
however they feel they should be reimbursed: They can be reimbursed per 
diem, they can be reimbursed actual costs. How would this institution 
work if, in fact, every Member of Congress could be reimbursed for 
travel costs, whatever they felt was appropriate? There needs to be 
some uniformity. Because the policy varied from bank to bank, these 
costs could easily be contained by a uniform, more taxpayer-friendly 
policy.
  Senator Dorgan has talked about the double standard, and certainly 
there is a double standard. When we also understand that 93.25 percent 
of all of the work that the Fed does has nothing to do with monetary 
policy--only a little over 6.5 percent of what they do relates to 
monetary policy--that is why I agree wholeheartedly with my friend, the 
junior Senator from North Dakota, that in fact they should be subject 
to the appropriation process. They should be.
  I am a member of the Appropriations Committee. We spend most of our 
time trying to figure out a way to downsize, to cut budgets, to 
eliminate programs. At the same time the Fed is telling us that we need 
to do this, their costs are spiraling. The rest of the Government 
underwent necessary belt tightening. The Fed enjoyed a smorgasbord of 
growth; they picked whatever they wanted. While the Federal 
Government's overall staffing level declined by 2 percent, the Fed's 
staffing level increased 6 percent over that.
  So we know there needs to be better internal management. The General 
Accounting Office found this. I have gone around the State of Nevada. 
People ask questions about the Fed. I have introduced legislation in 
the past to have an annual audit of the Federal Reserve System. It has 
gotten nowhere. It has gotten from being introduced to the garbage can. 
But now there are facts to indicate that what I have been talking about 
is absolutely necessary; that we do need to have an annual report, we 
do need better management control within the Fed.
  We do not know how costs have gone up in the last year and a half or 
so, but between 1988 and 1994, personnel compensation increased 54 
percent, equipment and software expenditures increased 85 percent, 
building expenditures increased 34 percent, and, as I already talked 
about, travel expenditures increased by 66 percent. There is very 
little in the Fed to keep these under control. The Fed is not subject 
to the same cost reduction pressures that have affected both public and 
private agencies.
  The $3.7 billion slush fund that they have, that they keep around for 
losses that may occur--we have not had any that occurred in 79 years. I 
am on the Appropriations Committee. We are now in conference, trying to 
work out the disputes we have. We badly need a few more dollars to 
allow this omnibus bill to be signed, these five appropriations bills. 
It could be done if we had the Fed's money that is sitting there, 
gathering dust. We would solve the problem. The Federal Government 
would be financed. We would not need any more continuing resolutions.
  So we know, as the Senator from North Dakota has indicated, that we 
need to do something legislatively. We first must have the $3.7 billion 
returned to the Treasury. We need to require an annual audit, an 
independent audit. We need to institute uniform procurement and 
contracting practices. We need to institute executive branch policies 
relating to travel, benefits and security. We certainly need to do 
that, at a minimum.
  I think it would be well that we tied the salaries of Fed executives 
to similarly situated Government personnel, and we need to subject the 
Fed's nonmonetary policy operations to the appropriations process. That 
is the least we can do.
  I think it also says a lot when we realize that the Federal Reserve, 
as described by my friend from North Dakota, has had this beautiful 
home. We can just see the top of that home. We cannot see it all 
because there is a huge fence around it. We know we have 
responsibilities for the structure, the landscaping in there, but we 
cannot see it.

[[Page S2844]]

  All we are asking is let us find out what is going on. It is 
important. They conduct important functions of this Government, and we 
should know more about what they do. We have to do away with the shroud 
of secrecy. We have to peel back this cloak that they covered 
themselves with since 1913. This rainy-day fund they have set up is not 
a rainy-day fund, it is for a hurricane. They have this spending free-
for-all attitude. That has to stop. They have a blank check mentality. 
I would like to know who is minding the shop, because 1913 accounting 
practices must be put to a stop.
  Several Senators addressed the Chair.
  The PRESIDING OFFICER. The Senator from North Dakota.
  Mr. DORGAN. Mr. President, how much time do I have remaining?
  The PRESIDING OFFICER. The Senator from North Dakota has 4\1/2\ 
minutes remaining.
  Mr. REID. And the Senator from Nevada?
  The PRESIDING OFFICER. The Senator from Nevada has 2\1/2\.
  Mr. DORGAN. Mr. President, let me use a couple of these minutes by 
trying to put this in perspective.
  There is the policy issue with respect to the Federal Reserve Board, 
how it behaves, what it does, how it impacts this country's economy. 
Then there is the issue that we raised with respect to the GAO 
evaluation of the Fed. That is what we are discussing before the Senate 
today.
  This 200-page evaluation of the Federal Reserve Board and its 
operations is the most significant look inside the Fed in 70 or 80 
years. What it shows, as we have indicated, is they have stashed away 
$3.7 billion for a surplus, despite the fact they have not had a loss 
in 79 consecutive years. They are spending more and more during times 
when others in the Federal Government are being told they ought to 
tighten their belts. Those issues are issues the Congress ought to deal 
with. The Federal Reserve Board ought to be subjected to an annual 
independent audit. We ought to have information and knowledge about 
what is going on behind that fence. That is the reason we want to make 
sure our colleagues, the relevant committees, and others will be able 
to evaluate the wealth of information that exists in this draft GAO 
report.
  Let me, finally, say a word about the policies of the Federal Reserve 
Board itself, which are different, separate and apart from the issues 
we have been discussing. I have very serious reservations about the 
monetary policies pursued by the Fed. As I have indicated, the Federal 
Reserve Board has seemed to feel, now, for some long while, that this 
country cannot have economic growth rates above 2.5 percent. If they 
fancied themselves as a set of human brake pads whose mission in life 
is to slow down the American economy, I say they have succeeded. Give 
them a trophy.
  That is not what this country needs. The global economy means wages 
are falling, not rising. It means inflation is going down, not up. And 
it means this country can have a higher rate of growth. There are 
Democrats and Republicans who believe very strongly that a 2.5 percent 
growth rate for our economy is anemic and cannot provide the kind of 
opportunity and expansion that we need in this country.
  I hope, in addition to the discussion we will have about what the Fed 
is doing, how it runs its operations, how it spends its money--in 
addition to that, and we should have that discussion as a result of 
this report, I hope we will also have a discussion about the Fed's 
monetary policies, and whether they are appropriate to try to produce 
the kind of economic future that we want in this country. In my 
judgment, they are not.

  Two years ago, we saw the Federal Reserve Board increase interest 
rates seven times. Why? Because they were heading off the fires of 
inflation, they suggested. But inflation was not going up, inflation 
was going down, and it continues to go down.
  What they managed to do with those interest rate increases was to 
slow down the American economy. That is not such a significant talent. 
My Uncle Joe can slow down the American economy. Just bring Uncle Joe 
to town, and I am sure he can figure out how to throw a wrench in the 
crank case. It does not take a special talent to slow down the economy.
  The question is, how do we get the economy moving again, a vigorous 
economy with new jobs and new opportunities for all Americans, without 
raising the specter of additional inflation? That is the task for all 
of us.
  The Federal Reserve Board sees itself on a singular mission: Keep 
economic growth somewhere in the range of 2.5 percent. That is not 
enough growth for this country. No one ought to be satisfied with that. 
It does not produce the jobs or the opportunities this country needs.
  Mr. President, I hope that even as we discuss the report about what 
the Fed does and how it spends its money, we will alternatively discuss 
Federal policies, especially in the area of monetary policy.
  Mr. President, I yield the floor.
  Mr. LOTT. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. LOTT. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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