[Congressional Record Volume 144, Number 128 (Wednesday, September 23, 1998)]
[House]
[Page H8516]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   BOLSTERING OUR COUNTRY AGAINST THE EFFECTS OF THE GLOBAL ECONOMIC 
                                 CRISIS

  The SPEAKER pro tempore (Mr. Snowbarger). 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 spend the next several minutes 
talking about something that is very important to all Americans, but 
something that is being, at least until recently, largely ignored here 
in our country; that is, the global economic crisis that originally 
expressed itself in Japan some 7 years ago, and then gradually swept 
across all of east Asia, and is now expressing itself in Russia, with 
the devaluation of the ruble and other economic problems in that 
country, and also in countries in South America and Latin America and 
elsewhere around the world.
  We, as the strongest economy in the world, have been somewhat 
insulated from the first direct effects of this global economic crisis. 
But the fact of the matter is that we are not immune from its effects, 
and we need to begin to bolster ourselves against it if we are going to 
maintain strength in our own economy.
  One of the most important things that we need to do is to reduce our 
real interest rates. That will enable our economy to strengthen by 
making money less expensive, so people can make the purchases they 
need, the longer term purchases they need to make, so that business can 
strengthen themselves and be prepared for the impact of this economic 
onslaught.
  Real interest rates, adjusted for inflation, are currently at a 9-
year high. Federal Reserve Board Chairman Alan Greenspan admitted as 
much to the House Committee on Banking earlier this year when he said 
the following: ``Statistically, it is a fact that real interest rates 
are higher now than they have been on the average of the post-World War 
II period.''
  We may wonder why short-term interest rates can be so high when the 
Federal Reserve has held them steady at 5.5 percent since March of 
1997. The answer to that question, of course, is inflation, or more 
precisely, the lack of inflation in our economy.
  As measured by the Consumer Price Index, the rate of inflation is 
currently at 1.6 percent. The CPI in fact has been below 2 percent for 
many months. When we factor in this low inflation rate, real interest 
rates currently are more than 4 times as high as they were in 1992 at 
the end of the last recession. We are paying more in interest than we 
should be paying.
  The Federal Reserve Board has been hypervigilant about wringing 
inflation from our economy. They interpret every positive indicator, 
low unemployment, rising wages, increasing productivity, every one of 
those indicators are interpreted by the Fed as a sign that prices are 
going to rise. Of course, they have been wrong every time.
  The Fed, in fact, in its fixation on inflation, is fighting, in 
effect, the last major war on inflation, which occurred back in the 
1970s. Their mindset is a 1970s mindset. The economy has changed, of 
course, dramatically since that period.
  I began calling for the Federal Reserve to lower interest rates more 
than a year ago, last summer, when it became clear that falling 
unemployment was not going to cause inflation to rise. I was concerned 
at that time that the Fed would see the first real, albeit modest, 
increase in workers' wages in almost two decades as a precursor to 
inflation, and that they would act to slow the economic growth, either 
by raising interest rates or not by lowering them. This was before the 
east Asian economic situation was a factor in the rest of the world, 
and particularly, in our economy.
  At the end of the last October, when the dimensions of the Asian 
crisis became apparent, I urged Chairman Greenspan to hold the line on 
interest rates until we knew how Asia would play out here in this 
country. I was concerned that disinflation or even deflation due to the 
strong dollar and increased imports might be the real problem facing 
us. In fact, currently our trade deficit is the major economic deficit 
we are confronting as a Nation.
  Since that time, the situation in Asia has not gotten any better. In 
fact, it continues to worsen. Barely a month ago the Russian government 
devalued the ruble and defaulted on their obligations, setting off 
another global economic problem. Latin America is already the next 
trouble spot, as investors are beginning to pull their money from 
emerging markets there and elsewhere around the world.
  The down side of living in a global economy has finally hit home, and 
we are unprepared for it. We have rushed into this global economy 
without our eyes open sufficiently. Interest rates on 30-year 
Treasuries are at record lows, and are actually below the Federal funds 
rate. Corporate earnings were down in the second quarter and are likely 
to be off again in the third quarter, judging from the early reports of 
many companies. The farm debt is at its highest level since 1985, as 
commodity prices slide and the global markets for goods dry up. Our 
trade deficit is the highest it has ever been, and it keeps increasing 
at record increments each and every month, month after month.
  The stock market seems to be on a daily roller coaster ride, and a 
decline in equity values, which is apparent, could dampen confidence 
and slow consumer and business spending as people watch their wealth 
evaporate.
  Mr. Speaker, this is why I am introducing a sense of the Congress 
resolution calling on the Federal Reserve Board to lower the Federal 
funds rate promptly. I hope that this resolution will be supported by 
all the Members.

                          ____________________