Tom Harkin

Mr. HARKIN

Mr. HARKIN. The Senator is right. I wish the Fed would pay more attention to Bill Greider's writings. Monetary policy has to work for all of our people, not just a few. It has to be cognizant of what is happening to ordinary people in this country. As the Senator spoke about what is happening internationally, I was looking through the papers. The Wall Street Journal pointed this out in an editorial on August 31, calling for the Fed to lower interest rates. They said, ``Since last year, currencies in emerging markets, from Thailand to Russia, have been collapsing like popped bubble wrap.'' This is a significant threat to us and people in those countries. Our dollar is much too strong right now. Because of that, they can't get the kinds of foodstuffs and things they need for their own people. (Ms. COLLINS assumed the Chair.) If we want to help the Japanese economy and the Asian economy, what we should do is lower interest rates. Many economists have noted that the value of currencies in several countries will not only reduce the rate of inflation but also sharply increase our trade deficit, eliminating many jobs and slowing growth in the process. Again, if we don't address this because of their slowdown, because they are not buying our products, we are going to lose jobs in this country. We are going to have a drastic slowdown. The fear I have, I say to my friend from Minnesota, is that we may have waited too long. The Fed was so frozen by this outdated, outmoded economic concept called NAIRU that they couldn't see what was really happening because they only focused on the rate of unemployment, and that caused them to be blind to everything else that was going on.

Mr. HARKIN. Absolutely.

Mr. HARKIN. I yield to my friend from Nevada.

Mr. HARKIN. I hope that the Senator, then, would try again to bring up some legislation to provide for an audit of the Federal Reserve. I honestly cannot believe we are not doing that. I appreciate the Senator for his enlightenment on that issue. I yield to the Senator from Utah for a question.

Mr. HARKIN. I will keep it short.

Mr. HARKIN. Sure. I thank the Senator. That is really the point. I have a chart to show that the real Federal funds rate is at its highest level in nine years. What does that mean? What that means is that real rates of interest are at a very high point. For example, even Chairman Greenspan said earlier this year that real interest rates are at a historically high level, compared to all the years from World War II until now. What does that mean? Well, that means that the farmers in America whose commodity prices are going down all the time, our livestock producers and our farmers have to pay exorbitantly high interest rates--real interest rates--when they are already squeezed with low prices. It means that our business sector, small businesses, and others who are creating jobs, who need to borrow money for expansion or even for job training or retraining, find that they are squeezed because of high interest rates. So they don't do it. So what happens then is our economy starts to slow down. I will point out that in the first quarter of this year, our growth was 5.5 percent; it was 1.6 percent in the last quarter. Many economic signs point to a possible recession, possibly a downward spiral in prices. Then we see what is happening in foreign economies and in foreign currencies. Because of our high interest rates, we find that their economies are going down and they, in turn, can't buy any of our products because of the excessively strong dollar that we have. So when you add it all up, because of the insistence of the Fed to keep a tight money policy, high interest rate policy, they have moved us to the brink of recession. In further responding to the Senator's question, from 1994 to 1995 the Federal Reserve raised interest rates by 100 percent, from three percent to six percent. They raised interest rates because they were beholden--most of them, or at least the voting majority--to an economic theory called NAIRU, Non-Accelerating Inflation Rate of Unemployment. That is a fancy term. What some economists have believed in the past is if unemployment fell to a certain level, inflation would take off and it would spiral upward and accelerate--it would not just rise, it would accelerate, if unemployment got to a certain level. Well, a couple years ago, economists said they thought that rate was 6 percent. They thought that if unemployment went below 6 percent, we would be in deep trouble. Then unemployment went below 6 percent and the Fed said, ``Oh, my gosh, we have to tighten monetary policy,'' and they started raising interest rates. Inflation never went up. Then unemployment went down. And, they said, ``Well, we changed our minds. The natural rate of unemployment is actually 5.5 percent.'' Well, then unemployment went below 5.5 percent. Now we are at 4.5 percent unemployment, and still no inflation. Yet, the Federal Reserve has continued to keep a tight money, high interest rate policy in effect, because they were afraid; they felt that because of this economic theory, inflation was going to take off. What happened is, because of that high interest rate policy, our farmers are squeezed, our consumers are squeezed, homeowners have to pay more monthly interest on mortgages on their homes, small businesses pay more money when they borrow to expand, or they just don't do it. A larger business, whether it is General Motors or Ford, would have to pay higher interest rates. The economy starts to slow down. That is exactly what happened. I submit further to my friend from Minnesota that because of their policies over the last couple years, because they would not move, it has helped generate the kind of economic collapse we have seen in other parts of the world. The high interest rate policy at the Fed is a contributing factor to the continual decline of the Asian economy.

Mr. HARKIN. I yield for a question to my friend from Minnesota.

Mr. HARKIN. Fifteen minutes left on this side?

Mr. HARKIN. Mr. President, I yield 7 minutes to the Senator from Minnesota, Senator Wellstone.

Mr. HARKIN. Mr. President, before I yield to the Senator, I ask that the amendment be called up at this time.

Mr. HARKIN. Mr. President, I ask unanimous consent that reading of the amendment be dispensed with.

Mr. HARKIN. I yield to the Senator from Minnesota 7 minutes.

Mr. HARKIN. How much time do I have remaining?

Mr. HARKIN. I yield whatever time I consume. Mr. President, this amendment that we have offered is cosponsored by Senators Dorgan, Conrad, Wellstone, Robert Kerrey, and Senator Bryan. Because of the actions of the Federal Open Market Committee, real interest rates are rising. In fact, real interest rates are at historically high levels, the highest in 9 years, because inflation has fallen while the Federal Reserve failed to lower the Federal funds rate. This chart points it out. The Federal funds rate continues to go up at about 3.9 percent. Fed Chairman Greenspan said in February of this year: Statistically, it is a fact that real interest rates are higher now than they have been on the average of the post- World War II period. I have said time and again that the high interest rate policy being imposed by the Federal Reserve is a stealth tax on hard-working American families, and I believe it is a contributing factor to the near collapse of several economies worldwide. Again, interest rates have a significant impact on virtually every family in America, every producer, business, and family farmer in this country. Lower rates have been needed for some time, but now quick action is truly crucial for our country's well-being. The economic signs not only in the U.S. economy but in economies worldwide demand swift and appropriate action. I note in the front page of the Washington Post this morning it says, ``Signs Point to Interest Rate Cut,'' and: Federal Reserve Board Chairman Alan Greenspan will testify before Congress today amid growing signs that he may propose cutting interest rates when Fed policymakers meet next Tuesday. And it goes on to say how many executives and economists have called for that. Now, the amendment that I have at the desk reads that we ask the Federal Open Market Committee to promptly reduce interest rates. Now, the Senator from New Mexico had suggested that perhaps we might want to alter that a little bit to just say that perhaps we should advise them or urge them to do something like that. I refer back to a congressional resolution passed by the Senate on December 18, 1982. It passed by 93-0. I believe the Senator from New Mexico may have been here at that time. I didn't check that, but I think he may have been here at that time. It passed 93-0. That resolution also called on the Fed to reduce interest rates. I will just read one sentence of it: It is the sense of the Congress that they should continue to take such actions as are necessary to achieve and maintain a level of interest rates low enough to generate significant economic growth, and thereby reduce the current intolerable level of unemployment. At that time, December 18, 1982, the Senate saw fit by a vote of 93-0 to tell the Federal Open Market Committee that they should do something. That is what we are saying here in this resolution. They should promptly reduce interest rates because every sign points to the need to do so. Again, we could say that they should consider doing it, but I am just saying in 1982 we didn't say they should consider taking such actions. The resolution said, ``They should continue to take such actions.'' So there was a direction from the Senate at that time to the Fed. To those who say we shouldn't interfere with the Fed, I say where in the Constitution of the United States is the Federal Reserve system given such a standing? It is nowhere to be found in the Constitution. Article I, section 8 of the Constitution gives the power to coin and regulate the power of money to Congress. We have, of course, delegated that power to the Federal Reserve System under the Federal Reserve Act, as amended, many times. Obviously, I don't believe Congress should coin money or regulate the value it. We couldn't do it. That is why we have the Federal Reserve. However, as policymakers, because the Federal Reserve is a creature of Congress, it exists only because of an amended law, passed by Congress. We have the right, and I believe the obligation, to tell the Federal Reserve what we feel, what we hear, what we see, what we think is happening in the economy. We are the policymakers and we should give them that guidance and direction when and if we believe that we should do so. Again, if there are those who don't believe that we should reduce interest rates, that we shouldn't tell the Federal Reserve that they should reduce interest rates, that I can understand. That is a clear policy difference. But to say that we shouldn't tell the Fed what to do flies in the face, I believe, of our responsibilities and our obligations as policymakers here in the U.S. Senate. Policy wise, I believe they should lower interest rates. So does the head of the National Association of Manufacturers, the president of General Motors, and a number of other economists both on the conservative side and on the liberal side. They are saying that we should lower interest rates. I think the purpose of this resolution and why I am offering it is to back up what I understand Chairman Greenspan is attempting to do. I understand there are still some members of the Federal Open Market Committee who don't believe we should lower interest rates. I think we should send them a very strong signal. We should back up what I understand Chairman Greenspan is now saying that they probably ought to do, and that is lower interest rates. That is the purpose of this amendment.

Mr. HARKIN. We don't know that?

Mr. HARKIN. No. I ask the Senator--I am not being facetious. Is the Senator from Nevada telling me that the General Accounting Office, the GAO, does not audit----

Mr. HARKIN. Can the Senator tell me why the GAO does not audit the Federal Reserve?

Mr. HARKIN. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. HARKIN. Parliamentary inquiry. What is the floor situation right now in terms of time under the unanimous-consent agreement agreed to yesterday?

Mr. HARKIN. I did not hear that. How much time?

Mr. HARKIN. On our side?

Mr. HARKIN. How much time remains?

Mr. HARKIN. I reserve my 50 seconds.

Mr. HARKIN. Mr. President, this amendment does not set monetary policy. It is a nonbinding sense of the Congress. William Gaston from the Congressional Research Service writes in a CRS report that, ``Congress has enacted nonbinding language to express its monetary policy preferences to the Fed.'' The last time this Senate debated a sense-of-the-Senate resolution to ask the Fed to lower interest rates was December 18, 1982. Again, I will read--it did not say it should seriously consider, it said, ``It is declared that it is the sense of the Congress that they should continue to take such actions as are necessary.'' That is what it said in 1982. It didn't say they should ``seriously consider,'' but they should ``take such actions.'' That is what this amendment says. It says they should reduce interest rates. The Business Roundtable said, ``The President and Congress should encourage the Federal Reserve to lower U.S. interest rates. . .'' not to seriously consider it.

Mr. HARKIN. Mr. President, I ask unanimous consent for 1 more minute.