[Congressional Record Volume 144, Number 35 (Wednesday, March 25, 1998)]
[House]
[Page H1508]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              EAST ASIA ECONOMIC INSTABILITY AFFECTS U.S.

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from New York (Mr. Hinchey) is recognized for 5 minutes.
  Mr. HINCHEY. Mr. Speaker, I want to talk this evening for just a few 
minutes about the meeting of the Federal Reserve Federal Open Market 
Committee which will take place on Tuesday of next week, the 31st of 
March.
  This is a very important meeting, as all of these meetings are, 
because the Federal Open Market Committee will in effect be setting 
short-term interest rates for the months ahead. Setting short-term 
interest rates is important because it governs so much of the lending 
that goes on, particularly the consumer lending that goes on in our 
country.
  It is consumer lending and borrowing that affects so much of our 
economic circumstances, including the level of growth. So the interest 
rates which will be determined at this meeting of the Federal Open 
Market Committee on Tuesday are critically important.
  The Fed has been saying, in effect, that they have been holding 
interest rates steady. That is essentially true. They have been holding 
them steady at about 5\1/2\ percent. When you factor in the very 
important fact that the consumer prices, in other words, the cost of 
living, has been going down, then you see that real interest rates 
have, in fact, been going up over the course of the last many months.
  This chart here, I think, demonstrates that quite clearly. Beginning 
in 1997, the interest rates have gone up quite dramatically. And the 
indications are that, absent any change in Federal Reserve policy, real 
interest rates, that is interest rates as a function of inflation, as a 
function of the cost of living in our society will continue to go up as 
this chart here clearly demonstrates.
  If interest rates go up, that means that the cost of many things will 
go up as people have to borrow to buy those things in our society. The 
Fed is excusing this raising of real interest rates by saying that 
there are indications of inflation in our economy.

                              {time}  1815

  But when we look closely at it, we discover that that is not the case 
at all.
  Just today, an announcement came out of the Department of Commerce 
indicating that durable goods orders were down again, orders for 
durable goods, which are used in every aspect of manufacturing in our 
country have gone down, indicating that manufacturing is going to go 
down in the future because those durable goods orders are going down.
  Consumer prices at both the retail and at the wholesale level 
continue to decline. There is absolutely no indication of any inflation 
anywhere in our economy, yet the Federal Reserve continues to allow 
interest rates to creep up. That is real interest rates, interest rates 
as a function of inflation.
  Now, under ordinary circumstances, this would be troubling, and we 
would be upset with the Federal Reserve for allowing the cost of 
borrowing to continue to creep up this way. But we are now involved in 
a circumstance that is not normal at all; it is very unusual. That 
circumstance is the financial crisis that is sweeping across all the 
countries, virtually all of the countries, at least, of East Asia and 
the very complicated financial problems that exist in those countries, 
which are causing actual disinflation in East Asia, and even deflation 
in some places that is going to flood the marketplace of every other 
economy in the world, as much as possible, with these cheap goods. 
Therefore, that is going to cause additional economic problems here.
  Indications are that the flooding of these cheap goods into our 
economy is going to cost us as much as 1 or 2 points in our economic 
growth and the cost could be even higher. We could experience economic 
growth of only 1 percent or even negative economic growth sometime 
later this year if the Federal Reserve does not act soon to reduce 
interest rates and prepare us for the onslaught of the consequences of 
what is taking place in East Asia.
  Some other countries are preparing themselves for the consequences of 
these activities. For example, some of the OPEC countries recently 
realizing that the deflation going on in East Asia that is causing oil 
prices to drop have come together and they are reducing the amount of 
oil that they are producing, and that is going to raise oil prices a 
bit, but what they are doing is preparing their economies for the 
onslaught of this disinflation and even deflation that is coming across 
from East Asia.
  Mr. Speaker, we need to do the same. The most important way that we 
can prepare ourselves for the effects of this disinflation and 
deflation is to lower interest rates, lower short-term interest rates 
at the next meeting of the Federal Reserve Federal Open Market 
Committee.
  I am circulating a letter this week to all of the Members of the 
House of Representatives asking them to join me in a letter to the 
Federal Reserve, asking them to take into consideration the fact that 
durable goods orders are down again, to take into consideration the 
fact that consumer prices and wholesale prices continue to fall, and to 
take into consideration the fact that we are about to be hit by the 
disinflation sweeping across East Asia, and that is going to have a 
damning effect on our economy, and we need to act, and act soon.
  The SPEAKER pro tempore (Mr. Deal of Georgia). Under a previous order 
of the House, the gentleman from Illinois (Mr. Ewing) is recognized for 
5 minutes.
  (Mr. EWING. addressed the House. His remarks will appear hereafter in 
the Extensions of Remarks.)

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