[Congressional Record Volume 146, Number 154 (Thursday, December 14, 2000)]
[Senate]
[Pages S11769-S11771]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     INTEREST RATES AND THE ECONOMY

  Mr. DORGAN. Mr. President, the Federal Reserve Board meets on Tuesday 
of next week. The Federal Reserve Board has increased interest rates 
six times since June 1999 in search of inflation. They are terribly 
afraid that there is inflation either under the bed, or in the closet, 
or just around the corner, out in the garage, near the driveway, or 
somewhere inflation exists. Of course, all the evidence suggests that 
the core rate of inflation is very low--well within moderate levels. In 
fact, the Producer Price Index released this morning suggests that the 
core rate did not increase at all in November. The Consumer Price Index 
will be released tomorrow, and I suspect it will show something very 
similar.
  Next week when the Federal Reserve Board meets, in my judgment, it 
will behoove them to reduce the additional tax on money they have 
imposed with six increases in the Federal funds rate.
  Let me describe why I think we ought to do that. This economy is 
slowing. After unprecedented economic growth in this country, this 
economy is slowing. The evidence is all around us.
  Manufacturing activity for the fourth straight month ending in 
November has declined. The National Association of Purchasing 
Management recently reported that its purchasing index had dropped to 
47.7 percent from 48.3 percent.
  Auto makers are idling plants. The real output of cars and trucks 
fell by some 20 percent over the second and third quarters. Car and 
light truck sales have fallen for the past 6 months with the largest 
drop in over 2 years in November.
  The number of manufacturing jobs declined by 220,000 in the last 4 
months. Factory orders are falling.
  Factory orders plummeted 3.3 percent in October in its weakest 
showing in 3 months.
  Housing starts and sales are off. Retail sales are well off. 
Yesterday, the Commerce Department reported retail sales fell by an 
unexpected 0.4 percent in November.
  I will not go on at great length. But the evidence is all around us. 
This economy is slowing.
  The Federal Reserve Board says it wants to slow the economy. The 
debate now is what kind of landing will occur--a ``soft'' or a ``hard'' 
landing, in the lexicon or jargon of economists. Nobody knows.
  I taught economics in college briefly, and I have said I overcame 
that experience. The fact is that economists don't know what is going 
to happen in the future. The field of economics, as I have said 
previously, is nothing more than psychology pumped up with a little 
helium. They tell us what they think is going to happen in the future.
  Prior to the last recession, 35 out of 40 leading economists in this 
country predicted that next year would be a

[[Page S11770]]

year of continued economic growth. That is what the field of economics 
produces.
  What is going to happen in the future? I worry that this slowdown 
could very easily move this country into a recession. We have to be 
careful about that.
  The Federal funds rate that the Fed has established is too high. It 
results in a prime interest rate that is too high. It results in higher 
interest rates paid by every American on their consumer debt, and on 
their real estate debt, and so on. That is higher than it should be. As 
a result of the Fed's six interest rate increases, the average 
household in this country pays about $1,700 a year more in interest 
charges. If we were going to have a tax on the American people, we 
would have great debate about it. This is a tax on money, and it is has 
required an average household to pay $1,700 a year more in interest 
charges.
  There is no debate on that. It is done behind the closed doors down 
at the Fed. They have their wish. The economy is slowing down.
  The question is, Will they have the sense next week to decide to 
reverse course and understand two things? One, there isn't any real 
inflation problem; and, two, they are overcharging for money, and they 
ought to begin reducing short-term interest rates because they have 
increased them too much.
  These are the folks who go behind closed doors and make these 
decisions. There is no public discussion or debate here.
  Here are the Federal Reserve Board of Governors and the presidents of 
the regional Federal Reserve banks. They serve on a rotating basis as 
part of the Open Market Committee and as part of the decisionmaking 
down at the Fed.
  Next Tuesday they will close the door. The American public isn't 
allowed in. They will make decisions about what kind of tax we will 
have on money. Six interest rate increases have been ordered by these 
folks over the last year and a half. They have slowed down the American 
economy.
  Looking at housing starts, autos, and retail sales across the board 
in economic activity, in my judgment, they are tinkering with the 
notion of allowing this country to experience the beginning of a 
recession. That would be most unfortunate.
  I want people to understand. Here are the names of the folks who are 
there. Here is their education, background, and their salaries.
  I think it is important for us to understand who is making public 
policy behind locked doors. Next Tuesday, when they talk about monetary 
policy, I think the American people ought to understand that the 
question of the interest rates and the amount of interest they pay on 
their credit cards, home equity loans and so on depend on what these 
folks are doing with respect to the Federal funds rate. It is very 
important.
  I worry very much that this economy may well head towards a recession 
unless we do something to reverse the course that the Fed has taken.
  Mr. REID. Mr. President, will the Senator yield for a question?
  Mr. DORGAN. Of course, I would be happy to yield.
  Mr. REID. The Senator from North Dakota has been such a leader on 
this issue dealing with the Federal Reserve. In fact, the Senator will 
recall that the Senator from North Dakota and the Senator from Nevada 
ordered a study of the Federal Reserve. We found, among other things, 
that they have a slush fund of over $3 billion. It has been there for 
70 years, or thereabouts. They never use it.
  I ask the Senator from North Dakota: Wouldn't it seem logical, as we 
are trying to do all of these things in the last few minutes of this 
session, if that money were to be used to help farmers, or help with 
some of the problems created by forest fires in the West? Wouldn't that 
be a better place to use that money than to use it for the so-called 
rainy day fund? We have never had a rainy day in the Federal Reserve.
  Mr. DORGAN. I agree with that. One could find important uses for it, 
or perhaps give it back to the taxpayers. But this is a circumstance 
where the Federal Reserve Board, according to the GAO investigation 
that was done, has a rainy day fund. Can you imagine having a rainy day 
fund in a climate where it never rains? The Federal Reserve Board can 
never lose money. It will never lose money, and has never lost money. 
They accumulated a rainy day fund of some $3.7 billion. It is more now.
  Here you have this last dinosaur on America's hill--the Federal 
Reserve Board--that operates in secret behind closed doors that creates 
its own rainy day fund. The GAO says they don't need it. They shouldn't 
have it. It ought to be given back.
  Guess what. A couple of years after that study was complete, has that 
rainy day fund been divested by the Fed, and given back to the 
taxpayers? The answer is no. Of course not. Why? Because this Congress 
usually won't touch the Fed with a 10-foot pole.
  There is this language about monetary policy that prevents almost 
anybody from even talking about it. That is one of the reasons I wanted 
to talk today about what happens next Tuesday.
  Our economy, in my judgment, is in some difficulty. It has gone down 
dramatically. We have a new President who will be sworn into office, 
and may well inherit an economy that is slowing down, and could even be 
heading towards a recession, at least in part, because the Fed has 
decided they want to slow down the economy. Six times they increased 
interest rates; they create a new tax on money, impose a new burden on 
every American family, and nobody thinks much about it.

  It is time to turn that around. The prime interest rate is too high 
by at least two percentage points, and as a result, all other interest 
rates in this country are too high. Why? Because the Fed has pegged the 
price of money at an artificially high rate because they want to slow 
the economy down. The fact is they run the risk of pushing this economy 
off the track of unprecedented long-term economic growth and into the 
ditch of a slowdown into a potential recession and increased Federal 
deficits.
  I hope the Fed will think long and hard next Tuesday about this 
subject and decide it is time to begin reducing interest rates 
following the six rate increases they have imposed on the American 
people.
  I will speak more about this. My expectation is we will probably 
finish this session this week, so I will not speak on the floor of the 
Senate next week. But before the Fed meets on Tuesday, I want to give 
more advice on Monday. They seldom take my advice, but I think they 
would be wise, if they want to ignore my advice, to at least listen to 
some of the good economic thinkers around this country who worry a 
great deal that what is happening to our economy is it is slowing and 
threatening to head into a very difficult period. Now is the time, not 
later, to do something.
  The Fed talks about preemptive strikes against inflation. My friends, 
there is no inflation at this point. All the evidence suggests 
inflation is well under control. What about a preemptive strike by the 
Federal Reserve Board preventing the economy from heading toward a 
recession? That would make sense next Tuesday.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, I applaud and congratulate the Senator from 
North Dakota. With this election having taken more than 30 days, and 
the stock market, as a result of the turmoil of the election, having 
dropped significantly, there is a lot of uneasiness in the economy.
  I hope the people who are cloistered in the Federal Reserve, hidden 
away from public view, have the opportunity to listen to what the 
Senator from North Dakota said. It is so important the people of the 
State of Nevada and this country be given a break at the beginning of 
the year on interest rates. Construction is being hurt. Everything we 
do is affected by the interest rates which as the Senator so 
graphically illustrated, dictate our lives. I hope the Federal Reserve 
would follow what the Senator from North Dakota has said. The Senator 
from North Dakota has had long experience working on financial matters, 
including the Ways and Means Committee in the House of Representatives, 
and in the Senate as head of the Policy Committee, and has given great 
direction on fiscal matters.
  I yield for a question.

[[Page S11771]]

  Mr. DORGAN. Mr. President, I know that the Federal Reserve Board 
reads everything. They are voracious readers of the economists who 
gather this information, provide it to the Fed, and assimilate it and 
make judgments.
  Let me give a factoid for their consideration. I have no idea what it 
means. The Oscar Meyer Weinermobile, one of the vehicles that runs 
around the country, had an opening for a driver in the newspaper the 
other day. They were placing a help-wanted ad for a driver for the 
Oscar Meyer Weinermobile. They got 800 college graduates applying. I 
have no idea what that means.
  It just occurred to me as the Fed looks at information about the 
economy, they might look at interesting things about this economy: 
Where it is headed, what is happening, who is employed, who isn't, and 
what might happen, 3, 6, and 12 months from now, and don't relent on 
interest rates and steer us back toward a longer term economic growth 
prospect.
  Mr. REID. I say to my friend, I am sure of one thing it does mean 
regarding the statistic regarding the car that looks like a hot dog: 
The fact that there are a lot of people with a college education who 
can't find work.
  Mr. DOMENICI. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call.
  Mr. DOMENICI. 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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