[Congressional Record (Bound Edition), Volume 160 (2014), Part 7]
[House]
[Pages 10089-10093]
[From the U.S. Government Publishing Office, www.gpo.gov]




                          THE FEDERAL RESERVE

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 3, 2013, the Chair recognizes the gentleman from Georgia (Mr. 
Woodall) for 30 minutes.
  Mr. WOODALL. Mr. Speaker, I am here to talk about the Federal 
Reserve, and if you want a real stemwinder of a conversation here on 
the House floor, Mr. Speaker, I recommend the Federal Reserve to you. 
It is nonstop laughs and giggles and interesting information.
  I can't get started without referencing my friend from the District 
of Columbia who just spoke, and she spoke with such passion. I have the 
great pleasure of serving on the House Rules Committee, Mr. Speaker. As 
you know, it meets right behind the wall up there. It is the only 
committee that meets in the Capitol, and the Delegate from the District 
of Columbia is often there, speaking just as passionately on behalf of 
her constituents.
  It is hard because, as she spoke with absolute certainty about the 
role that the District of Columbia plays, the Constitution speaks with 
similar certainty, and that is what makes it a difficult conversation 
to have.
  The Constitution set up this governing district and gave those 
responsibilities to the U.S. Congress to administer.
  Now, the Home Rule Act--and if folks haven't looked at the Home Rule 
Act, it is a fascinating read. Like so many things that we do in this 
Chamber, it was done for all the right reasons and has its fair set of 
unintended surprises along the way.
  Here is what the Constitution says in Article I, Section 8, and it 
says, in part, this:

       Responsibilities of the Congress, to exercise exclusive 
     legislation in all cases whatsoever, over such district, not 
     exceeding 10 miles square, as may, by cession of particular 
     States--you will remember, Virginia and Maryland both ceded 
     real estate in order to create the District of Columbia, we 
     used Maryland's half, we gave back Virginia's half--and the 
     acceptance of Congress, become the seat of the Government of 
     the United States, and to exercise like authority over all 
     places purchased by the consent of the legislature of the 
     State in which the same shall be.

  Exclusive jurisdiction granted to the Congress by the Constitution, 
Mr. Speaker, but then we passed a statute that gave certain home rule 
rights and responsibilities away.
  Now, that statute, of course, is secondary to the Constitution. The 
Constitution is controlling. The statute is secondary, and that statute 
grants the rights and the privileges that the Delegate was referencing.
  That happens so often here, Mr. Speaker, that we have constitutional

[[Page 10090]]

responsibilities, and then we have statutory authorities, and 
sometimes, those come into conflict.
  I happen to have one of those on my mind tonight, and it is the 
Federal Reserve Act, Mr. Speaker. If you are ever looking for a good 
read, can't quite get to sleep in the evening, let me suggest the 
Federal Reserve Act to you.
  It is not a fascinating read, but it is an incredibly important read, 
and it says, in part, this--this is the Federal Reserve Act, Mr. 
Speaker. You can't see it from where you are, but it says this:

       The Board of Governors of the Federal Reserve System and 
     the Federal Open Market Committee shall maintain long-run 
     growth of the monetary and credit aggregates commensurate 
     with the economy's long-run potential to increase production, 
     so as--

and this is the important part--

       so as to promote effectively the goals of maximum 
     employment, stable prices, and moderate long-term interest 
     rates.

  The authority to control the Nation's money supply lies here in 
Congress. The authority to control interest rates, as they are related 
to the money supply, lies here in Congress.
  Mr. Speaker, the Congress delegated that to the Federal Reserve Board 
through the Federal Reserve Act, and the Federal Reserve Board's 
mission, again, is to:

       Promote effectively the goals of maximum employment, stable 
     prices, and moderate long-term interest rates.

  Now, Mr. Speaker, we have had this conversation before. If you have 
ever been in a high school economics class, you are thinking, hey, wait 
a minute; can I really promote full employment and interest rate 
moderation with the same language? Don't I lower interest rates in 
order to get maximum employment? Don't these things sometimes run 
countercyclically to one other?
  It is a very difficult mandate that we had given the Federal Reserve. 
I want to talk about how they have handled that because, Mr. Speaker, 
the frustration I hear from folks back home is: You are the United 
States Congress, why can't you get things done? Why won't you move 
together? Why won't you be effective? In what? In growing jobs and 
expanding the economy.
  Now, we have done some things here of which I am very proud--
collaborative things, bipartisan things, bicameral things--that have 
absolutely taken us a few steps in the right direction. I wish we were 
moving more rapidly in the right direction. I am finding it harder to 
get agreement here than I expected, 3 years ago, when I came to this 
body.
  The Federal Reserve then has taken it upon themselves, through this 
Federal Reserve Act mandate that I read earlier, to try to improve, 
stabilize--insert your favorable word here. They are not villains. They 
are out to help try to improve our economy.
  What I have here, Mr. Speaker--again, you can't see it. I have the 
Federal Reserve's balance sheet. Now, what is important about the 
balance sheet, Mr. Speaker--I go back to 2007, and what you see is the 
Federal Reserve's balance sheet is relatively stable, just over about 
$800 billion.
  Now, again, if you are working in a high school economics class--this 
is not the millions with an m. This is billions with a b. $800 billion 
is the typical size of the balance sheet at the Federal Reserve, but we 
enter these financial crises in 2008, 2009, 2010, the size of the 
Federal Reserve balance sheet doubled, and then it quadrupled. It 
doubled, and then it quadrupled.
  Mr. Speaker, in the period of about 3 months, the Federal Reserve's 
balance sheet went from $800 billion up above $2.4 trillion.
  I want you to think about that. The budget of the entire United 
States of America is about $3.5 trillion. It goes up. It goes down. It 
is about $3.5 trillion. In the span of about 3 months, the Federal 
Reserve--created by Congress, empowered by Congress--expanded its 
balance sheet without any additional approval of Congress by about $1.7 
trillion.
  The Federal Reserve expanded its balance sheet in 3 months by twice 
as much as the entire Federal Government spent in that same period of 
time without a single vote, without a single conversation in this 
Chamber, without a bit of consent from the Speaker, from the majority 
leader of the Senate, from the White House, $1.7 trillion.
  Now, you can't see the colors on the chart, Mr. Speaker. The balance 
sheet, of course, has a variety of components to it. Traditional 
security holdings that the Federal Reserve has always had, those 
actually are a smaller part of those holdings today.
  What we are looking at is, in this beige area, it is long-term bond 
purchases. It is Federal Government debt purchases.
  It doesn't take a long conversation to begin to get concerned when an 
entity created by the Federal Government is actually buying all of the 
Federal Government debt--or at least a substantial portion of it.
  What does that mean to our long-term economic growth?

                              {time}  1500

  Again, if the Federal Reserve was enacted to promote effectively the 
goals of maximum employment, stable prices, and moderate long-term 
interest rates, then how is doubling the balance sheet, tripling the 
balance sheet--now we are just almost at $4 trillion. That is beyond 
quadrupling the balance sheet. That is coming close to quintupling the 
balance sheet. What does this mean about the long-term economic 
security of America?
  Again, Mr. Speaker, this is something that happens--$4 trillion--
without a single vote in this Chamber, without a single vote across the 
Capitol in the Senate, without a single signature by the President, and 
without any consent by the American people whatsoever. Four trillion 
dollars in balance sheet expansion with not a single bit of consent of 
the governed.
  Well, why is that important, Mr. Speaker? It is because this doesn't 
happen by accident. This happens in response to a crisis. Now, this 
Chamber responds to crises, and the administration responds to crises. 
But the Federal Reserve responded to an economic crisis. It tried to do 
what it could do to help the economy grow.
  Well, I happen to have in my hand, Mr. Speaker, the testimony from 
then-Federal Reserve Chairman Ben Bernanke, February 9, 2011. Now, Mr. 
Speaker, you won't remember February 9, 2011 here in this Chamber, but 
that was my first month on the job. I had just gotten sworn in, and 
they had just given me the voting card for the Seventh District of 
Georgia. I am sitting in the House Budget Committee, and here comes 
Federal Reserve Chairman Ben Bernanke to talk to me--just a freshman 
here in Congress--about economic policy and how it is we are going to 
grow the American economy.
  Well, that might have been my first month on the job, but it wasn't 
Chairman Paul Ryan's first month on the job. He was a veteran. He was 
our chairman at that time, as he is today. He was a veteran of the 
budget process, and he asked Dr. Bernanke: I am looking at the 
expansion of the balance sheet. The chairman said: I am looking at 
QE2--quantitative easing 2 at the time it was called--and I am trying 
to figure out what this is going to do to the economy long term.
  I want to quote from Chairman Bernanke because it is important. The 
clarity is important. Chairman Paul Ryan was asking whether or not all 
of this work by the Fed was going to monetize our debt, whether 
inflation was going to come and we were going to solve our debt 
problems by just inflating everybody's money right out of existence.
  And Chairman Bernanke said:

       No, sir. No, sir. Monetization would involve a permanent 
     increase in the money supply to basically pay the 
     government's bills through money creation.

  That is not what we are doing, he says.
  He says this:

       What we are doing here is a temporary measure which will be 
     reversed so that at the end of this process, the money supply 
     will be normalized, the amount of the Fed's balance sheet 
     will be normalized, and there will be no permanent increase, 
     either in the Fed's balance sheet, or in inflation.

  In February, 2011, Chairman Ben Bernanke says that the Fed's balance 
sheet will be normalized. The Fed balance sheet will return to a normal 
level

[[Page 10091]]

because what was happening at the Fed at that time was a temporary 
measure.
  Again, Mr. Speaker, you won't be able to read these numbers, but I 
want to help you find February 2011 on this chart. February 2011 is 
right here. Right here.
  It was at this point where you see a mild dip, Mr. Speaker, where 
Chairman Ben Bernanke said that the balance sheet--which has risen not 
to twice its normal levels but to three times its normal levels--this 
is a temporary measure, and the balance sheet will begin to return to 
normal. Mr. Speaker, we are 3 years later, and far from returning to 
normal, the size of the balance sheet has doubled.
  Temporary measure. Don't worry about it. We are on our way, going to 
return to normal. But rather than return to normal, the size of the 
balance sheet has again doubled. Not one vote in this Chamber. Not one 
vote across the Capitol in the Senate. Not one signature by the United 
States President. Not one bit of consent from the 300 million Americans 
who are governed. Balance sheet doubled.
  What does that mean? Why is this important? Mr. Speaker, I know what 
you are saying. I promised you a humdinger of Federal Reserve 
conversation this afternoon. I told you the Federal Reserve was an 
exciting topic, and you are thinking, Rob, you are talking balance 
sheets. Balance sheets don't inspire me at all. Well, okay, what about 
interest rates, Mr. Speaker? Do you remember the interest rates of the 
1970s? Because I do. Do you remember when getting a 12 percent mortgage 
was getting a pretty good deal? Because I do.
  Folks don't realize that today. If you were born after the 1970s, you 
have been in a time of relatively moderate interest rates. This, what I 
have here is 10-year interest rates, Mr. Speaker, the U.S. Treasury 10-
year rates. And I go back to about 1960 and we track these rates out. 
Back in the 1960s, they were about 5 percent, 4 percent. Go right on up 
there into the end of the Carter years, the beginning of the Reagan 
years, hit 16 percent on a 10-year Treasury coming out of the Federal 
Government, Mr. Speaker. And then after those Carter, Reagan years, you 
begin to see those numbers decline. And you go all the way out now and 
you are looking at yields under 2 percent.
  Mr. Speaker, these are interest rates on money the Federal Government 
borrows. Now, again, I hate to dwell too much on my high school 
economics class lessons, but you know how interest works, right? If 
there is a lot of something and you want to borrow it, you pay a little 
bit of interest. But if there is not much of something and you want to 
borrow it, you have to pay more interest. Or, conversely, if there is a 
lot of debt, in order to get folks to buy that debt, you have to pay 
higher interest rates. But if there is only a little debt, to get folks 
to buy that debt, you pay lower rates.
  Well, we have more debt in this country than we have ever had before, 
Mr. Speaker. Never before in the history of this country have we had as 
much debt as we have now. Never before have we rolled that debt up 
above the size of the GDP as we have now. Never before have we borrowed 
as much from the next generation of Americans sacrificing their future 
prosperity for our current benefit. Never before. So you would think 
that we would be paying the highest rates in American history.
  Let's go to the chart. No. No. The highest rates in American history 
were back in the late 1970s, early 1980s, Mr. Speaker. What we are 
paying are the lowest interest rates in American history. Now, I want 
you to sort through that with me, Mr. Speaker. We have more debt than 
we have ever had before. We are borrowing more from the world than we 
have ever tried to borrow from the world before, and yet interest rates 
on our borrowing are going down instead of up--going down instead of 
up.
  The debt today in America, Mr. Speaker, is four times higher than it 
was in the late 1990s. Yet, the interest service on the debt today is 
the same because we are borrowing at these low teaser rates.
  What enables these low teaser rates? Among other things, when the 
Federal Reserve is willing to buy those bonds, long-term Treasury 
purchases. You see them right here. They didn't even exist prior to 
2009. Now those purchases have grown to over $1 trillion. It turns out 
that you can get lower interest rates on your money if you are willing 
to buy it from yourself and pay yourself back. You can charge less.
  But what does that mean to long-term economic security in this 
country, Mr. Speaker? Because that sounds a little bit like a dangerous 
Ponzi scheme to me. Maybe there is something aberrant about the 10-year 
rates.
  So, I want to look here, Mr. Speaker. Again, you can't see my colors, 
but I charted those 10-year yields from 2009 out until today, and I 
have coordinated them with the implementation of this Federal Reserve 
policy called quantitative easing. The red squares, Mr. Speaker, 
indicate when quantitative easing stops. The green squares indicate 
when quantitative easing starts. Quantitative begins 2009, QE2, QE1 
ends.
  QE2 begins, QE2 ends. QE3 begins, QE3 not yet quite ended. And you 
will see that the interest rates directly correspond--directly 
correspond--to when these Federal Reserve programs begin and end. 
Dramatic manipulation of interest rates. Again, not a single vote in 
this Chamber, not a single vote across the Capitol in the Senate, not a 
single signature by the President, and not a single bit of consent from 
the hundreds of millions of Americans who are governed. Interest rates 
being manipulated.
  It is not just the 10-year rates, Mr. Speaker; it is the 30-year 
rates, too. Again, this is long-term money. If you borrow almost $18 
trillion--as we have borrowed here in this country--you are not going 
to pay that overnight. That is a long-term promise. So you would expect 
that these long-term rates would be getting higher and higher and 
higher and higher because the risk is greater and greater and greater. 
Again, we threaten America's fiscal security by borrowing from 
tomorrow's generations to pay for today's benefits. It is fair to 
question the morality of that, Mr. Speaker.
  If you started your small business on the day that Jesus Christ was 
born, and you lost $1 million on your first day in business, but you 
worked hard, you worked 7 days a week, Mr. Speaker, from the day Jesus 
Christ was born until today, and you lost $1 million every single day, 
you would have to work for another 730 years, Mr. Speaker, to lose your 
first trillion dollars--your first trillion dollars. Another 700 years, 
$1 million a day, 7 days a week to lose your first trillion dollars.
  We have borrowed from tomorrow's children, from tomorrow's 
generation, from tomorrow's prosperity almost $18 trillion. Yet 
interest rates are going down.
  Why is that? It is because, number one, we are the best of all the 
worst economies on the planet. Let's be clear. Of all the disastrous 
economies on the planet, ours is the least disastrous. And so folks 
still want to come and buy American debt. Thank goodness. Forbid the 
thought that one of these other economies is going to improve one of 
these days, we are going to have a harder time finding debt service. 
How much more of our own money can the Federal Reserve buy? Most debt 
in American history. Highest percent of GDP in American history. 
Interest rates going down.
  Well, Mr. Speaker, maybe this all sounds like a pretty good scheme, 
then, if I can borrow as much money as I want to beyond historical 
norms but I can keep interest rates as low as I want to below 
historical norms. Maybe what this means is I found the secret mechanism 
for making money--I can just create prosperity for the American people 
out of thin air.
  Well, it turns out that is not quite true. In fact, it is not even 
close. What I have here, Mr. Speaker, is the dollar index. The dollar 
index is an index of the value of the American dollar around the globe. 
Because a dollar is meaningless. What is meaningful is how much a 
dollar can purchase. If I can only purchase one Coca-Cola, Mr. Speaker, 
with a dollar, then that dollar is worth one Coca-Cola. If I can 
purchase 12 Cokes with a dollar, then that

[[Page 10092]]

dollar is worth a whole lot more to me. It is still just a dollar. We 
don't care about the dollar. We care about how much it will purchase. 
That is what this chart shows.
  Again, Mr. Speaker, QE1 goes into effect, QE1 ends. QE2 goes into 
effect. QE2 is announced, it goes into effect, QE2 ends. QE3 is 
announced, it goes into effect, it goes out over the horizon. This is 
what I want you to see, Mr. Speaker: QE1 goes into effect, and in the 
midst of the QE1 operation, before it begins to wind down, the value of 
a dollar has dropped by 15 percent.
  I want you to think about that. If we tried to pass a bill in this 
Chamber that looked at everything that everybody had in this entire 
great country of ours and taxed it all at 15 percent to bring that in 
immediately, what do you think the chances are we would pass that? What 
do you think the chances are we would get one vote on that? The Senate 
wouldn't pass it. The President wouldn't sign it. But, yet, when we 
devalue our dollar, we devalue everything that everybody has by the 
exact same percentage.
  In the case of QE1, 15 percent reduction before that program decided 
to wind down. Come over here to QE2. It is another 5 percent reduction 
in the value of the dollar, Mr. Speaker.
  Here is the thing. We can print as much money as we want to. It is 
our right as a sovereign nation. But the more you print, the less 
valuable it becomes. That is what Chairman Ryan was asking when he was 
asking Chairman Bernanke if he planned to monetize the debt. He was 
asking: Do you plan to print so much money that the money itself 
becomes less valuable? If you owe $1 trillion, do you plan to print so 
much money that you pay back the trillion dollars with these newly 
printed dollars that are worth only a fraction of what the original 
borrowed money was worth?
  QE1, dollar collapses 15 percent. QE2, dollar down 5 percent. For 
every action, there is a reaction, Mr. Speaker. The Federal Reserve has 
these mandates: interest rates, inflation, full employment. There are 
only so many levers they can pull. And, in fact, the answer is that 
they have run out of levers, Mr. Speaker. That is why you see the 
balance sheet looking the way it is today. Look at all these lines that 
never existed before in the history of the country. Look at these 
lines. Long-term Treasury purchases. That is new. That is something 
that has just been implemented in the last 5 years. Folks ran out of 
tools.
  Look at this line, Mr. Speaker. Federal agency debt. Mortgage-backed 
securities. Whoever thought of the Federal Reserve purchasing mortgage-
backed securities--by the billions? Monthly, by the billions never 
existed before in the history of this country--an expanding part of the 
balance sheet today.

                              {time}  1515

  Mr. Speaker, there are only so many tools that the Federal Reserve 
has to use in order to try to keep this economy afloat, each one of 
these tools never approved by the Congress, never approved by the 
President, never approved by the American people; and yet, the Federal 
Reserve's balance sheet is now larger than the entire budget of the 
United States of America. Isn't it time we have this conversation?
  Chairman Ryan says: Isn't this monetizing the debt?
  Chairman Ben Bernanke says: No, this is a temporary measure. Balance 
sheet levels will return to level.
  When were they going to return to normal? Well, that comment was in 
February of 2011. Since that time, we have seen another 100 percent 
increase in the size of that balance sheet.
  Mr. Speaker, I am not saying that the Federal Reserve is wrong. I 
have some grave concerns. We have asked the question: How is it you are 
going to unwind these giant balance sheets?
  The answer is: I don't know. We have never seen it done in the entire 
history of the United States of America, but don't worry about it, it 
is going to be fine.
  It is a frightening thing. Here we are, in the longest recession of 
my lifetime, the most stagnant growth coming out of a recession, that 
we have ever seen coming out of a recession in the history of this 
country, the Federal Reserve pulling all of the levers it knows how to 
pull, Congress pulling all of the levers it knows how to pull, the 
balance sheet getting larger, unwinding it getting harder.
  I want you to open up The Wall Street Journal the next time you have 
a chance, Mr. Speaker, and keep an eye on this dollar index. I can't 
say it too strongly, that if I tried to pass a 5 percent tax on 
everything that everybody has, everybody earns, everybody owns, I would 
be laughed right out of this Chamber; yet through monetary policy, we 
could devalue all of those exact things by that exact amount, and 
nobody would even know.
  There would be no record of debate here in this Chamber. There would 
be no record of a vote in the Senate. There would be no bill that the 
President signs or vetoes. It would happen with the stroke of a pen 
with the Federal Reserve Governors, and America would be none the 
wiser. Every day, you can find it. Track that dollar index, Mr. 
Speaker.
  What happens when you start to devalue money, Mr. Speaker, is you 
start running into inflation, and we see that. I talked earlier about 
what happened in those Carter years before President Reagan came in.
  We were looking at annual inflation way up above 12 percent--back 
after World War II, again, printing a lot of money, borrowing a lot of 
money, economic turmoil, even though people were at work, maximum 
employment, but inflation rate was up about 18 percent, but here we go. 
This chart is from 1946 out to 2014.
  Folks ask: Rob, why are you so worried? Isn't inflation kind of low 
today?
  Inflation is incredibly low today. Think about that. We have pumped 
all of this new money into the economy. We have all this additional 
liquidity. We have all this cash parked on the sidelines, and yet 
inflation is incredibly low, but ticking up.
  The question isn't what is inflation today, Mr. Speaker. The question 
is: When inflation starts to move, will we be able to control it?
  We have spent so many of our tools trying to stimulate the economy, 
and again, we can question whether or not that was the intent of the 
Federal Reserve Act when it was passed, to have all of these new levers 
created and pulled in a time of economic crisis, but they have been 
created, and they have been pulled; and so when inflation comes, will 
we still have any tools in the toolbox to control it?
  This is not just my fear, Mr. Speaker. You can go this week to The 
Wall Street Journal. This is June 9:

       Inflation is rising in the United States and could become a 
     serious problem sooner than the Federal Reserve and many 
     others now recognize.

  Going to the end of that article:

       The key to the future is how the Fed will respond when 
     prices steadily rise above its 2 percent target rate, while 
     the overall unemployment rate is still relatively high. A 
     misinterpretation of labor-market slack and a failure to 
     create a positive real Federal funds rate could put the 
     economy on a path of rapidly rising inflation.

  In the old days, the Federal Reserve, with all of the power it has 
and all of the levers it has to pull, all of the tools in its toolbox, 
focused on inflation and interest rates and employment; but with all of 
those levers having been pulled, with inflation on the rise, with 
unemployment stubbornly high, and with interest rates stubbornly low, 
what levers are left to pull when the next crisis comes?
  Mr. Speaker, it is not a question of if the next crisis comes, it is 
a question of when the next crisis comes, and when we do these 
extraordinary things to solve today's crisis, we put America at risk 
for tomorrow's crisis.
  I do not fault those folks who are trying to make things better, but 
I do fault us as an institution if we allow the prosperity of tomorrow 
to be traded away to treat the ills of today.
  Mr. Speaker, the Federal Reserve Act, commit it to your reading. We 
will be down here again because this is an issue that this Chamber must 
exercise our article I controls.
  I yield back the balance of my time.

[[Page 10093]]



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