tv [untitled] May 10, 2012 4:00am-4:30am EDT
>> in a few moments, a hearing on the role and future of the federal reserve. in a little less than two and a half hours, an updated plan for border security. >> furthermore, i remain optimistic about the future of indiana and the united states of america. the news media and political leaders spend a great deal of time talking about what is broken in our country, and in some degree, that is the nature of their business. but we should also have confidence that the unique american experiment is alive and well, and our political system still can work. >> tuesday night, long-time indiana republican senator richard lugar lost to primary challenger richard murdoch. look back at senator lugar's six-time career on the senate floor and in hearings, including
his work in the '90s with senator sam nunn on a nuclear disarmament program in the former soviet union. all online, archived and searchable at the c-span video library. a house financial services subcommittee chaired by representative ron paul held a a hearing this week on the future of the federal reserve. members looked at several bills. representative paul's proposal to abolish the fed and measures introduced by financial services ranking member representative barney frank and joint economic committee vice-chairman kevin brady. this is a little less than two and a half hours. >> this hearing will come to order. without objection, all members' opening statements will be made a part of the record. the chair notes that some members may have additional questions for these two panels which they may wish to submit in writing.
without objection, the hearing record will remain open for 30 days for members to submit written questions to these witnesses and to place their responses in the record. i also ask unanimous consent that those nonsubcommittee members who are present be recognized if they wish to give opening statements or ask questions. i now recognize myself for five minutes for an opening statement. first i want to thank our two colleagues for being here today, and they will be recognized shortly. but as many members know that the subject of the federal reserve and monetary policy has been something that i've been interested in for a long time, believing that it has a great deal of significance, you know, with regards to a healthy economy. today we'll be discussing the various proposals to address the subject of some of the shortcomings of the monetary system. i think what has happen heard in these last five years, it has
been recognized by many that monetary policy in the federal reserve has a lot to do with the creation of some of our problems and their shortcomings when it comes to solving these problems. the federal reserve has been around for almost 100 years. 100 years next year. and, of course, it has gone generally under the radar. not too many people talk precisely because it was always said that it should not be interfered with by the executive branch or the legislative branch. but lately there has been more concern. last year with the help of congressman frank, we were able to get some transparency of the fed. and it was obviously quite helpful in moving that along. from my viewpoint, we still have more to do on that. but it's very clear whether we
decide, you know, exactly what constitutional money is and how it comes abought. i don't think many people reject the idea that the congress does have responsibility of oversight and figuring out exactly how to handle that. so with the crisis that came about in the last five years ago, i think an attitude changed dramatically. i think this is the reason that we had strong support in the last session for auditing the fed. and more information has come out because of the lawsuits. but the way i see the monetary policy, and i think it's generally neglected is most people realize how big the economy is and they know about supply and demand of all products and goods and services and labor. but generally, they don't talk a whole lot about the other half of the equation. and that's the monetary issue. the monetary issue is one-half of all the transactions.
so to duck the issue and pretend it's not important i think has been -- has been a mistake. i personally believe that over these many decades, the federal reserve has gotten a free pass because if we had good times, if they were able to stimulate the economy and have easy credit and we had good times, they got the credit. and if the predictable slumps would arrive and something had to be done, congress would generally act and the federal reserve would act, and then they would get the credit for getting us out of the slump. but i think that has changed in the last five years because of the seriousness of the crisis, how global it is, and how one of the consequences has been this excessive debt. and then the bailing out that occurred. so what congress did on the bailout is significant, but minor compared to how much the
federal reserve was able to do. and for this reason, so many people want to know a lot more about what is going on. not only do we want to know about policy and a lot will be discussed today about particular policies and how to guide that policy, but one thing we should not forget about is the nature of money. if we're trying to describe how we manage a monetary system, it seems to be most difficult in my view that you have to be able to define money. and define the dollar, which has not been done for a long, long time. we use the federal reserve note as the unit of account. but there is no legal definition of a federal reserve note. and that's a pledge to pay something. so a note being something precise, and then you have to have management. and it doesn't work well, then we think, well, we just need more regulations and everything
will work out smoothly. i have a lot of reservations about that because i think we have a lot of inflation. we have a lot of instability and prices. and even when the reports come out that the prices are rather stable, they seem to ignore the fact that the costs of living for many is going up significantly. the price of energy goes up. the price of medical care goes up. the price of education goes up. so even when the cpi and the ppi may not be revealing what is happening there is still a lot of the obstruction of the value of money. for this reason now, we've been in a decade or so where the real wages have not been able to keep up, which really is the bottom line, i believe. the unemployment factor, and keeping up with the -- keeping up with the cost of living and keeping up with real wages. so i'm very pleased to have the various members today as well as
on the second panel to discuss what i consider a very, very important issue. and now i would like to yield five minutes to mr. clay. >> thank you, chairman paul, and especially for holding this hearing on improving the federal reserve system. and examining today six pieces of legislation to reform the federal reserve system. one piece to abolish the federal reserve, sponsored by our chairman, mr. paul, and another one that is sponsored by mr. kucinich would make the federal reserve an arm of the treasury. the other bills would make various changes either to the mandate or to the federal open market committees' governance, and as ranking member of this committee, i want to focus on the federal reserve dual mandate of maintaining stable prices and
full employment for monetary policy. the full employment and balance growth act of 1978, better known as the humphry hawkins act set four benchmarks for the economy -- full employment, growth and production, price stability, and the balance of trade and budget. to monitor progress towards these goals, the full employment and balanced growth act of 1978 mandated that the board of governs of the federal reserve present semiannual reports to congress on the state of the u.s. economy and the nation's financial welfare. the humphry hawkins charges the federal reserve with a dual mandate, both maintaining stable prices and full employment. and since president obama took office in january of '09, the
unemployment rate has gone from 7.8%, around inauguration to 10% as the impact on financial crisis spread. to 8.1% today. i do believe the u.s. economy its heading in the right direction with the proper nudge it could probably improve even more. as of march, the consumer price index was 2.7%. over the past year, a decline from february of this year of 2.9%. during the same period, the energy index has risen 4.6%, and the food index has increased 3.3%. both increases are smaller than last month. in contrast, the year change in the index for all items, less food and energy, which was 2.2% in february, edged up to 2.3% in
march. all of these factors play a very important role in getting america back to economic growth and prosperity. i look forward to the witnesses testimony. mr. chairman, i would yield back. >> i thank the gentleman. now i yield five minutes to dr. hayworth. >> thank you, mr. chairman. it is with great pleasure that i anticipate the testimony from our distinguished colleagues, and we have a great challenge before us because obviously a central bank, our central bank, the federal reserve, has -- we've cherished its independence in implementing monetary policy, yet at the same time obviously the congress has to establish monetary goals and hold the federal reserve responsible, and we have, obviously, as a congress, the express power to coin money and regulate the value thereof.
so there is this dynamic tension, obviously, between the independence of the fed and its accountability to us. so it is going to be very interesting to hear your proposals as to how we make that -- reach that balance. but in specific with regard to the dual mandate, chairman bernanke has said many times that he does not perceive, in effect, he said he does not perceive an inherent conflict, if you will, in the dual mandate because, as i have understood him, serving the goal of price stability clearly works favorably toward having an economy that will work and that will enhance the employment prospects for all those who need work.
yet, we see that his warning, which he has expressed very diplomatically regarding our fiscal policy having implications for monetary policy that it cannot overcome forever and ever by accommodation. we see that his warnings seem to be born out in the fact that several years of accommodative monetary policy have not resulted in the kind of enhancement in our economic statistics we'd like to see. i look forward to your testimony and thank you for all the work that you have done on this very crucial topic. i yield back, chairman. >> mr. chairman. >> i thank the lady. >> if i may, i'd like to ask unanimous content, and the gentleman from minnesota be allowed to sit with us. >> we already asked for that unanimous content, but without objection, to make sure. now, if the gentleman from minnesota would like to make an opening statement, he could do
that now. >> very briefly, mr. chairman. thank you for the chance to make an opening statement and address this really important topic. i really don't have so much a statement as i have some questions that i'd like to just put out on the table for discussion, and i hope we hit them in the course of our afternoon. i guess my question is, the dual mandate, is it the problem? i mean, the fact is, to the degree that we've had challenges with monetary policy, has the dual mandate been responsible? in not, why the focus? i'm curious if anybody can point to an instance in the last 70, 80 years when the dual mandate requirement required the fed to down play their preferred anti-inflation approach with concern to unemployment. seems to me these are perfect. the dual man date has been working.
if it hasn't, i'd be curious to know when it has let us down and when the dual mandate has been the cause of flawed monetary policy. i'm also curious to know, you know, how have we been doing with the dual mandate? have we really been pursuing both and to the degree the statute will call for? i'm concerned that we live in a time when we're getting used to an unemployment rate of about 8%. might be all we can ever aspire to get down to. i think this is a national disgrace and outrage, and i think our country needs to do much more to pursue both prongs of the dual mandate. i'm concerned that unemployment has not been getting its full due. so these are some questions that i have, some concerns that i would like to see addressed. even though i'm not on the subcommittee, i'm grateful to be allowed to be on it today and hope we can explore these important topics. thank you, mr. chairman.
i yield back. >> i thank the gentleman. now i yield time to the gentleman from arizona for an opening statement. >> thank you, mr. chairman. i'll try to do this quickly. since being placed on your committee, this has become an area of great interest. one of the sides you're trying to get your head around, and as we walk through the pieces of legislation, is with what the fed does in regards to monetary policy. has it, as part of its unintended or intended consequences, allowed those of us here in congress to engage in really bad fiscal policy? in many ways, is it an institution through its actions that allows us to get away with bad acts? secondly, even though it was a one off, but in the discussions, the fed is heading -- their holdings are, what, heading towards $2.9 trillion? what's the plan? at some point, when do they move back to normalization of their
portfolio? what is the potential cascade effects when moving back to a normalized portfolio? with that, i yield back. thank you, mr. chairman. >> i thank the gentleman. now i want to move to our first panel. i want to introduce representative kevin brady from texas. an eight-term republican congressman. representing the eighth district t he is the sponsor of hr-4180, the sound dollar act. also with us today is the ranking member of the financial services committee, representative barney frank. he is a 16-term democratic congressman, he's representing the fourth district of massachusetts. he's the sponsor of hr-3428. i will now recognize congressman brady for his opening statement. >> thank you, chairman.
members of the subcommittee, before discussing the sound dollar act, i'd like to acknowledge the work that dr. paul has done on this subcommittee. he's a long-time former member of the joint economic committee, to bring sound dollar to the forefront of the public debate. inflation has been called many things. a hidden tax, a government sponsored reduction in workers' pay checks, as dr. paul often says, theft. more and more americans understand the monetary policy that ultimately devalues our own currency. we agree on three key points. preserving the value of the dollar is essential to economic growth and prosperity in america. the federal government must not be allowed to monetize its debt. it should serve all interests, not just the interests of washington and wall street. i'd like to thank you for your steadfast commitment to bringing those issues to the forefront of the public debate. i'm pleased to testify on behalf of the sound dollar act. i want to thank the members of
this subcommittee who have will be co-sponsored this legislation. the problem today is that according to some, 1800s was the british century. the 1900s was the american century. the 2000s, the 21st century, may well be china's century. well, not so fast. but for america to continue its preeminence in the global economy, it's important we get the role of the federal reserve right. as we know, the federal reserve veered from the successful rules and policies that brought the great moderation of the 1990s and instead adopted an interventionist approach that helped inflate the housing public and led to a global economic crisis. this intervention was justified by the employment half of the dual mandate and continues today. i believe it's a contributing factor to this anemic recovery.
the policies are felt by the single mom who goes to the grocery store and finds her paycheck doesn't go as far because inflation is robbing her of the value of her hard earned dollar. she finds the same thing as ss fills her gas pump as well. these policies are also felt by the unemployed. the uncertainty generated by the fed's unprecedented interventions is discouraging business investment in new buildings, equipment, and software, which drive job creation in america. you look at the numbers. government spending is where it was before the recession. consumer spending is where it was before the recession. business investment is not. the fed has played a role in that. for america to remain the world's leading economy in the 21st century, congress must give the fed a single mandate for
price stability, ensure that it is independent from political pressure, and hold it accountable for results. critics charge focusing on a sound dollar implies the fed will ignore the unemployment needs of america. they're wrong. america with only maximize our real output in employment with long-term price stability, protecting the purchasing power of the dollar over time provides the strongest foundation for lasting economic growth and job creation. critics also react as if a single mandate is a shocking proposal. as we know, the united states won world war ii, enjoyed three decades of prosperity and put a man on the moon without a dual mandate. it's not a fundamental part of our constitutional fabric. it's a 1977 policy directive based on discredited phillips curve, and congress can change it. while it may be politically appealing, the current dual mandate asks the fed to do something it simply cannot do. chairman ben bernanke has testified that in the long run, the only thing the fed can control is inflation. in the long run, low inflation is the best thing we can do for growth.
the maximum level of employment is largely determined by non-monetary factors. further, using monetary policies as a short-term tool to speed growth may actually harm the economy in the long term. let me skip to the end and make the point here that among other provisions in the sound dollar act, we grant a permanent vote to all the regional federal reserve bank presidents because as important as new york and washington is, there is much more to america's economy. therefore, it should better reflect our geographic diversity. we require the fed for the first time to articulate its lender of last resort policy in order to reduce uncertainty of moral hazard. we speed the release of transcripts in five to three years to create more timing of transparency. we make sure the new consumer financial protection bureau is accountable to hard working americans by funding it the same way as other agencies do.
mr. chairman, i've included my full testimony for the record as well. >> i thank the gentleman. now mr. frank is recognized. >> thank you, mr. chairman. i appreciate your acknowledgment of the work we did together. it actually is work that began with one of your texas colleagues, mr. gonzalez, who works down with us who was a pioneer in forcing the federal reserve to be open. he made them release information they claimed didn't exist. kind of a magical feat. one of the things that ought to be noted, in every instance, beginning with mr. gonzalez and maybe before, in the work we did as the information flow has increased, it has been beneficial. there have been none of the negative effects some people have worried about. at the same time, it ought to be clear that the release of all this information has, i think, helped dispel the notion that there were nefarious things going on. we've gotten a lot of information out under the legislation we have that there will be no transactions the