[Congressional Record (Bound Edition), Volume 147 (2001), Part 1]
[Senate]
[Pages 76-77]
[From the U.S. Government Publishing Office, www.gpo.gov]



                         FEDERAL RESERVE BOARD

  Mr. DORGAN. Mr. President, I have come to the floor today to briefly 
talk about the Federal Reserve Board and our economy because it is 
important we have some discussion on what is happening in our economy.
  I have been watching in recent days the announcements both by the 
Federal Reserve Board and also the way the press in this country has 
portrayed the discussions about a softening or weakening economy and 
the Federal Reserve Board's attempts to respond to it by cutting 
interest rates.
  Let me first say uncharacteristically that the Fed did the right 
thing a few days ago by reducing the Federal funds rate by 50 basis 
points. The interest rates imposed by the Fed have been historically 
too high. Seven months ago, the Federal Reserve Board increased 
interest rates for the sixth time, and that was 50 basis points. Do my 
colleagues know why the Fed did that 7 months ago? Because the Federal 
Reserve Board said America had

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an economy that was too strong and growing too rapidly.
  The reason I want to have this brief discussion today is to say this 
economic slowdown people talk about is not an accident. The Federal 
Reserve Board believed the economy was growing too rapidly. They 
worried, therefore, that it would ignite a new wave of inflation. In my 
judgment, that was not a logical conclusion of the economic growth we 
were seeing, but nonetheless, Alan Greenspan and the Federal Reserve 
Board deliberately wanted to slow down the economy.
  What is the result of all of that? Let me read a couple of headlines: 
``Slowing Factory Activity Hints at Recession. Sharp Drop Is Weakest 
Monthly Reading Since 1991.'' USA Today.
  ``GM to Idle Eight Plants Next Week.'' Associated Press, January 4.
  ``Sears to Close 89 Locations.'' This morning's Washington Post.
  ``E-Toys to Eliminate 700 Jobs.''
  ``Covad to Lay Off 400 Workers.''
  I think one gets the point. This economy is slowing. The Federal 
Reserve Board increased interest rates six times since June 1999, the 
last time 7 months ago, by 50 basis points, believing that despite 
higher productivity growth by the American workers there would be a new 
wave of inflation, and intending that it had to respond to an economy 
that was growing too rapidly. In my judgment, they were mistaken. I 
said so at the time on the floor of the Senate.
  Seven months later after saying the economy was growing too rapidly, 
we have all these news reports that, gee, this economy is slowing. I 
wish the reporters would ascribe that slow growth now or the slowdown 
of the economy to the Fed's actions. This was medicine administered by 
an economic doctor 7 months ago and the months previous to that on five 
other occasions because the Fed believed our economy was growing too 
rapidly. It was the wrong medicine at the wrong time. The result is a 
slowdown, in many cases, perhaps, a slowdown that is more dramatic than 
the Fed intended. Because of that, 2 days ago the Fed decided it would 
decrease the Federal funds rate by 50 basis points. The problem is that 
does not always take effect quickly. It takes some while for it to 
course its way through our economy.
  A 50-basis-point reduction is not enough. The Federal funds rate, and 
therefore all other interest rates, are still high historically 
relative to the current rate of inflation. It is, therefore, a tax on 
the cost of money. An average American household, because of the 
previous six interest rate increases imposed by the Fed, is now paying 
$1,700 a year in additional interest charges. Think of the chaos that 
would have caused had someone come to the floor of the Senate and said: 
We have a proposal. We think the economy is doing too well, and we 
would like to ask every American family to pay $1,700 more a year in 
taxes. Think of the debate about that.
  Higher cost of credit is a tax on the American people artificially 
imposed by the Fed. Interest rates that are higher than are 
justifiable. Real interest rates, above the rate of inflation, are 
still extraordinarily high, and in my judgment, represent a wrongheaded 
public policy.
  We will see if we get out of this with a slowdown that is a soft 
landing and slow, gradual growth once again, or whether the Fed has 
really miscalculated and increased interest rates so much that it took 
this economy off track. I hope it is not the latter. I hope it is the 
former. I am not wishing a bad result, but I am saying the next time 
someone talks about this economy--I heard some conservative 
commentators say this is the Clinton slowdown. This slowdown is 
engineered by the Federal Reserve Board. They talked about it, they 
insisted upon it, they voted upon it, and now 7 months later, we bear 
the fruit that might be a bitter fruit. I want people to understand.
  I kind of yearn for the day--and I was not here then--when we debated 
interest rate policies all across this country. Read the economic and 
financial history of this country and you will find that a century and 
a half ago, the question of interest rates and monetary policy was 
debated from bar rooms to barber shops all across this country. As late 
as 50 years ago, a quarter point increase in the Federal funds rate 
imposed by the Fed would be front page headlines and debated at great 
length, but not anymore.
  The Fed acts imperviously to public input. It is the last dinosaur in 
town. It operates behind locked closed doors. The American public is 
not allowed in, and no President will comment much about the Fed 
because they are worried they will upset the market. So they went on 
their merry way 7 months ago believing they ought to slow down the 
American economy.
  The next time you hear about this economic slowdown, understand it 
was engineered by the Federal Reserve Board and let us hope they take 
aggressive additional action--not just the 50 basis points a couple 
days ago--but aggressive additional action to put interest rates where 
they ought to be relative to the rate of inflation and stop overtaxing 
the American families by engineering the higher cost of credit they 
have caused in the last year and a half that is unjustifiable.
  It probably is shouting in the wind to talk about the Federal Reserve 
Board, but it is, nonetheless, therapeutic for me, so I continue to do 
it.
  I very much hope we can continue an economy that produces the rewards 
of new jobs and new opportunities and hope for all Americans. We need a 
balanced fiscal policy and a balanced monetary policy to do that. The 
Fed controls monetary policy absolutely. We control fiscal policy. We 
will have, I assume in a matter of weeks, people bringing to the floor 
of the Senate very substantial proposals for tax cuts, as some say, 
$1.3 trillion or $1.5 trillion over the next 10 years, to respond to 
this very issue of an economic slowdown. Again, I say this slowdown was 
deliberately engineered by the Fed. We need to be very careful, 
however, on fiscal policy which we control not to put this country back 
in the same peril of budget deficits in the future. It would be very 
irresponsible to begin permanently disposing of a surplus that is 
projected in the future but that has not yet occurred.
  If we have a surplus, and I hope we do, that results from a growing 
economy, a fair amount of it ought to be used to reduce Federal debt. 
If during tough times we run up Federal indebtedness, during good times 
surely we must pay it down. What better gift to America's children than 
that? If we have surpluses in the future, and I hope we do, some of it, 
in my judgment, can and should go back to the American families who pay 
their taxes and could use some tax relief, but not just with a formula 
that deals with income taxes.
  Most Americans pay more in payroll taxes than income taxes. If we are 
going to send money back in the form of tax relief--and we should if we 
have these surpluses, after we have allocated some to reducing the 
Federal debt--then let us make sure we understand we send it back based 
on the total tax burden the American families face, and that includes 
the payroll tax.
  Finally, if we have surpluses--and I hope we will--some of it should 
be devoted as well to the investments in the things that make America a 
better place in which to live: Sending our kids into the best 
classrooms in the world, building our infrastructure, providing for our 
health, and those kinds of issues as well.
  Mr. President, you have been generous with time today.
  Again, let me hope that this day ends with good news for all of us in 
our ability to organize. We will continue these debates later in 
January.
  I yield the floor.

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