[Congressional Record Volume 144, Number 147 (Thursday, October 15, 1998)]
[Senate]
[Pages S12621-S12622]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              FEDERAL RESERVE BOARD REDUCES INTEREST RATES

  Mr. CONRAD. Mr. President, I have just learned that the Federal 
Reserve Board has moved to reduce interest rates by a quarter of a 
point. The irony for me is that about an hour ago, I came to the floor 
to give a speech to urge the Federal Reserve Board to take action to 
reduce interest rates. I left my office to come here, and just when I 
arrived, the Chair had left for the press informational meeting.
  I do not know exactly when the Federal Reserve Board acted, but I was 
going to urge them to take such action because of the growing financial 
crisis we see around the world. I noted in the speech that I intended 
to give about an hour ago, urging the Federal Reserve Board to take 
this action, that recently Newsweek magazine had a cover story entitled 
``The Crash of 1999: It Doesn't Have to Happen.''
  I also noted that yesterday in the Wall Street Journal there was an 
opinion piece by Robert Eisner entitled ``Act Now to Prevent a 
Recession,'' and a news story also in yesterday's Wall Street Journal 
indicating that ``Asia Waits in Vain for Money to Return.''
  Mr. President, the point that is critically important to understand 
is that we cannot be an island unto ourselves. I noted with interest 
the statement of Alan Greenspan, the head of the Federal Reserve, on 
September 23, 1998, when he said:

       It is not credible that the United States, or for that 
     matter Europe, can remain an oasis of prosperity unaffected 
     by a world that is experiencing greatly increased stress.

  It seems very clear the United States is being affected. We have seen 
growth in the second quarter of 1998 drop to 1.6 percent--down from 5.5 
percent in the first quarter. And if corporate profits sag, the 
business investment which has accounted for nearly a third of our 
growth over the last 4 years could decline.
  Most importantly, the world economic situation is deeply troubling. 
If we look at what has happened in world stock markets, going back to 
September of last year and then looking forward to August of this year, 
only the United States has been holding up. We have seen dramatic 
declines in Japan, in Hong Kong, and, of course, a virtual collapse in 
Russia.
  Earlier this summer, I was at a meeting with the Russians in Europe. 
At that meeting, I met with the top people of their economics institute 
who went through the actual numbers, the financial numbers, for Russia. 
And I must say, I left there increasingly alarmed. Frankly, Russia is 
in much deeper trouble than I think is commonly understood. They 
explained to me that they have at the national level about $3 billion a 
month of income--$3 billion. They have about $5 billion of fixed 
expenses.
  Mr. President, they have short-term debt due by the end of this year 
of $41 billion. They are in deep trouble. They are engaged in a giant 
Ponzi scheme of taking in money from outside and paying those that they 
are under the most pressure to pay. None of it adds up.
  This financial collapse in Russia, coupled with the Asian financial 
situation, threatens not only most of the developing world but it also 
can certainly have a dramatic effect on economic growth here at home. 
That is why I believe it is imperative that the United States take 
action, specifically with regard to the Federal Reserve Board reducing 
interest rates to give an additional lift to this economy.
  I am very pleased that the Federal Reserve Board took action today to 
reduce rates a quarter of 1 percent. But I

[[Page S12622]]

think it is going to take more than that to get us through this crisis, 
to prevent a recession from hitting America.
  Total U.S. export volume has fallen nearly 6 percent this year, a 
very sharp reversal over the steady export increases in the preceding 6 
years. In addition, the dollar value of our exports to Asia has dropped 
13 percent this year while our trade deficit with Asia is projected to 
increase by nearly $50 billion from last year.
  Prices received by U.S. exporters, including our farmers, have 
fallen. I represent a farm State, perhaps the most agricultural or 
certainly one of the most agricultural States in our Nation. I can tell 
you, we are already in a deep recession because of collapsing commodity 
prices. Those prices are at a 52-year low, adjusted for inflation. So 
in real terms, the prices our farmers are getting are at a 52-year low. 
No wonder we have just had to pass a $6 billion rescue package.
  In addition, I think it is important to understand that one of the 
key reasons the Federal Reserve Board has been reluctant to reduce 
interest rates is because they are concerned about inflation. Well, I 
do not think inflation is the threat. There currently is virtually no 
inflation in the U.S. economy.
  Over the last 12 months, consumer prices are up less than 2 percent; 
in fact, they are up about 1.7 percent. Producer prices are actually 
declining. We are actually experiencing deflation in producer prices. 
And at that very moment, the real Federal funds rate is at a very high 
level. The real rate is at about 4 percent. Historically, if we look at 
the record, the real Federal funds rate is about 2 percent. So the real 
rate we are paying for interest on money today is about double the 
historical rate.
  Mr. President, that could be understood if we were facing an 
inflationary threat. But I believe, and I think the evidence suggests, 
that the greatest threat we are facing is a threat of recession. That 
is why I am very pleased the Federal Reserve acted today to reduce 
rates an additional one-quarter of 1 percent. I was disappointed when, 
at their last meeting, they did not cut more aggressively. And I hope 
they do not stop here. Further easing of interest rates is going to be 
necessary to avoid a very serious economic slowdown not only here but 
around the rest of the world.
  If you look at economic history, when other countries are slowing 
down--and we have seen dramatic slowdowns in much of Asia, in Russia, 
and now we are seeing the creeping effect of that slowdown in Central 
America, in Latin America, and South America--the only way to prevent 
this all from leading to recession here at home is to give a lift to 
the economy. And the best and simplest and most direct way to give a 
lift to this economy is to lower interest rates.
  As I have indicated, the real rate of interest in this country is at 
about double the historical rate. So certainly there is room for 
additional easing to avoid recession here and to help lift the rest of 
the world out of economic slowdown--in some cases a recession, in some 
cases potentially much worse than that.
  Mr. President, lower interest rates will expand consumer buying 
power, provide an important stimulus to the U.S. economy, and help 
restore consumer confidence, which has dropped markedly since the 
beginning of the year. Businesses, of course, will also be paying less 
in interest costs, which will help to sustain profits and to encourage 
continued strong business investment. Finally, lower interest rates 
will make other investments in troubled economies more attractive, 
helping to stem capital outflows from those countries that are so 
deeply troubled.
  Additional interest rate cuts will send important psychological 
reassurance to world markets and to American consumers and businesses. 
Cutting interest rates is, I believe, a prudent insurance policy 
against the threat of recession here at home and a deepening recession 
abroad.
  The Federal Reserve Board should be commended for taking action 
today. And I would urge them to be prepared to take further action to 
avoid the kind of slowdown in this country that will only make world 
recovery that much more difficult.

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