Extensions of Remarks •

4572 EXTENSIONS OF REMARKS February 27, 1991 EXTENSIONS OF REMARKS THE FEDERAL RESERVE REFORM penditures are detailed in the U.S. Govern Mr. Greenspan was not appointed by Presi ACT OF 1991 ment budget for fiscal year 1992-the $115 dent Bush has not caused any significant million spent by the Board of Governors. Even problems with monetary policy. But if they HON. LEE H. HAMILTON though the Federal Reserve engages in more were unable to work together, the result could OF INDIANA than $1 trillion in transactions in the money be serious damage to the American economy IN THE HOUSE OF REPRESENTATIVES markets each year, most of these activities are and a paralysis of economic policy. This is a Wednesday, February 27,1991 exempt from audit by the GAO or any other risk the country should not take. • outside agency . The Federal Reserve Reform Act would ad Mr. HAMILTON. Mr. Speaker, today Rep- The bill that Representative DORGAN and I dress this by having the President appoint the resentative BYRON DORGAN and I are introduc are introducing today aims to make the Fed Fed Chairman to a 4-year term beginning 1 ing the Federal Reserve Reform Act of 1991. eral Reserve more accountable to the Amer year after taking office, when there will be a This bill would make some modest changes ican people, not by giving politicians control new vacancy on the Board in any event. Each in the practice and procedures of the Federal but by creating a formal channel of commu appointee will still be subject to Senate con Reserve to address two issues of great impor nication between the President and the Fed firmation, as under current law. Giving the tance to the American economy and our sys eral Reserve, and by providing Congress and President 3 years of a term with a Federal Re tem of democratic government-the current the American people with more and better in serve Chairman of his own choosing is surely absence of any channel of formal communica formation on the Federal Reserve's policies preferable to the possibility under current law tion between the Federal Reserve and the ad and procedures. of a lengthy period where the President and ministration, and the veil of secrecy surround The bill has five major provisions. Chairman cannot work together. ing policymaking at the Federal Reserve. First, it would require the Secretary of the Tliird, this bill would require the FOMC to The Federal Reserve occupies an anoma Treasury, the Chairman of the Council of Eco disclose immediately any changes in the tar lous position within the Government of the nomic Advisers, and the Director of the Office gets of monetary policy, including its targets United States. It is an enormously powerful in of Management and Budget to meet three for monetary aggregates, credit aggregates, stitution, but it does not conform to the normal times a year on a nonvoting basis with the prices, interest rates, or bank reserves. standards of government accountability. Power Federal Open Market Committee [FOMC], to The FOMC currently keeps major policy de without proper accountability simply does not consult on monetary and fiscal policy. cisions secret for 6 weeks after they are made fit into the American system of democracy. Two of the required meetings would take and carried out. Most other government agen Through its control over monetary policy the place just before the FOMC sets its annual cies must not only publish decisions in the Federal Reserve affects the lives of all Ameri money growth targets in February and July Federal Register before they can take effect, cans. It has the power to decide who prospers and reports to Congress, as required by the most in fact must publish proposed decisions and who fails. The path that the Federal Re Full Employment and Balanced Growth Act of for public comment before they can even be serve sets for monetary policy and interest 1978. The third meeting would occur in the fall issued in final form. rates affects every businessperson, worker, at the start of the administration's annual While secrecy may help insulate the Federal consumer, borrower, and lender in the United budget cycle. These meetings will bring to Reserve from criticism, secrecy has two eco States and has a major impact on the overall gether the key members of the fiscal and nomic costs. performance of the economy. monetary policymaking teams. First, secrecy makes capital markets oper The independence that the Federal Reserve The purpose of the meetings is to improve ate less efficiently. The Federal Reserve's po must have to insulate monetary policy from the flow of information between the adminis sition on this can be defended only if you be political pressures also removes the Fed from tration and the Federal Reserve. Currently, lieve that ignorance is better than knowledge. the normal processes of accountability that there is no formal channel of communication But one of the major conclusions of micro apply to every other agency of the Federal between the President and the Fed. At times, economic theory is that thorough and com Government. We must address a very difficult the administration is reduced to carrying on plete information is a requirement for markets and perplexing problem-how to make the policy disputes by publicly sniping at the Fed to work efficiently. This applies to financial Federal Reserve more accountable to the through the press. Under this bill, the adminis markets as well as to markets for goods and American people without jeopardizing its inde tration will have a formal avenue to present its services. pendence and its ability to conduct monetary program for the economy to the FOMC and Second, secrecy is unfair to small investors. policy free of political pressure. lay out its goals and targets for monetary pol When the Federal Reserve makes a policy No other Government agency enjoys the icy. The members of the FOMC will also have change, large investors and Wall Street firms Fed's prerogatives. Monetary policy is con an avenue to convey their concerns about fis can employ experts to monitor the Federal Re ducted in secret, behind closed doors. The cal policy to the administration. Communica serve and decipher its activities in the financial Federal Reserve is not required to consult with tion will flow both ways. markets. This gives them an advantage over Congress or the administration before setting Second, the bill would allow the President to small investors, borrowers, and others who money or interest rate targets, even though its appoint a Chairman of the Federal Reserve don't have resources to employ Fed-watchers power affects every American. It waits 6 Board-with the advice and consent of the to interpret and anticipate Fed policy changes. weeks before releasing policy decisions. The Senate--1 year after taking office, at the time The solution is immediate release of Federal President, who is responsible for the perform when the first regular opening would occur on Reserve policy decisions, as the bill would re ance of the economy and is blamed if things the Federal Reserve Board. This would make quire. This is a change that is widely sup go wrong, often must wait until late in his term the Fed Chairman's term basically cotermi ported by economists and participants in finan to appoint a new chairman of the Federal Re nous with the term of office of the President of cial markets. serve Board, raising the risk that the President the United States. Fourth, the bill would permit the Comptroller and the Federal Reserve Board Chairman The current Chairman of the Board of Gov General to conduct more thorough audits of might be at odds. President Bush, for exam ernors, Alan Greenspan, was appointed by Federal Reserve operations, by removing se ple, will not be able to appoint a Fed chairman President Bush's predecessor and will hold lected current restrictions on GAO access to until August 1991. The Fed's budget is not that office until August 10, 1991, almost 3 the Federal Reserve. published in the U.S. Government budget, years into President's Bush's term. Fortu The General Accounting Office is the watch even though it spends about $1.7 billion per nately, Chairman Greenspan and President dog of Congress. It carries out that respon year. Only 7 percent of Federal Reserve ex- Bush have a cordial relationship. The fact that sibility through financial and program audits of • This "bullet" symbol identifies statements or insertions which are not spoken by a Member of the Senate on the floor. Matter set in this typeface indicates words inserted or appended, rather than spoken, by a Member of the House on the floor. February 27, 1991 EXTENSIONS OF REMARKS 4573 government agencies. These audits are of tre costs. The rest will be for supplies, travel ex She is a part of a war effort aiming to free mendous value to Congress. Not only do they penses, telephone and postage, printing the citizens of Kuwait from vicious aggression ferret out waste, fraud, and abuse, they per money, maintenance of equipment, amortiza and secure peace not only for the Middle form the even more important function of tell tion of buildings, and so forth. The remainder East, but for the world. She is a part of a bat ing Congress when programs are not working of the Fed's revenues will be returned to the tle to free men and women from fear. She re~ and where programs can be improved. Treasury, where it is listed in the budget as an resents our country as equally and bravely as For many years, from the mid-1930's to the offsetting receipt.

Load more