Alan Greenspan’s decision to raise interest rates last month produced an unintended consequence–the awakening of the Democrats on the House Banking Committee.
Led by Representative Barney Frank of Massachusetts, the Democratic minority is demanding that Chairman Jim Leach launch full scale hearings on Greenspan’s action and its impact on jobs and consumers. The Democrats–with the notable exception of Representative Charles Schumer of New York–are united in their concern about the Fed’s policies.
So far Leach is resisting putting Greenspan on the Committee hot seat. Leach tells Democrats that the mandated pro-forma semi-annual “Humphrey-Hawkins” hearings on monetary policy are enough. But, the Democrats are well aware that the Humphrey-Hawkins hearings under Leach have deteriorated into little more than a public relations event for the Federal Reserve.
The Democrats are fearful that Leach’s subservient attitude toward the Fed will only encourage the Federal Reserve to launch another binge of interest rate increases as it did in 1994-1995. They want to send a sharp signal of disapproval before the Federal Open Market Committee (FOMC)–the Fed’s monetary policy body–meets on May 20.
The Committee Democrats have gotten strong support from House Minority Leader Richard Gephardt. Unfortunately President Clinton and Secretary of the Treasury Robert Rubin have continued their long standing “see no evil, hear no evil” posture toward the Fed. If they are supporting the House Democrats, they’ve managed to keep it a secret.
Neither the Clinton Administration nor the Republican 105th Congress have spared the rhetorical excesses in promising a balanced budget. But, chances of balancing federal budgets or household budgets will vanish if the Federal Reserve slams on the monetary brakes, slows economic growth and throws people out of work.
It is amazing that it takes a “petition” from the Democratic minority to stir the Committee to meet responsibilities assigned to it by the House of Representatives. Why wouldn’t every member–Republican, Democrat and Independent–want to know the rationale behind the Fed’s actions and the evidence, if any, assembled to support the interest rate increase? This seems fundamental to the jurisdiction assigned the Committee and the oaths of office sworn to by every member.
Leach’s defense of the Federal Reserve is no surprise. Throughout the last Congress, he dodged efforts by Representative Henry Gonzalez, the ranking Democrat, to generate hearings on the operations of the Federal Reserve. Even after the General Accounting Office chimed in with reports supporting Gonzalez’s findings, Leach ignored his oversight responsibility.
On regulatory issues, Leach has repeatedly pushed provisions that would make the Federal Reserve the federal government’s super regulator. While promoting vast new powers for the Federal Reserve, Leach has done nothing to increase accountability, openness or responsiveness on the part of the Fed. Power without
accountability is antithetical to a democracy.
The Democrats have now directly confronted Leach’s nonfeasance as Chairman. Clearly, the Republican majority on the Committee has the votes to make oversight of the Fed’s monetary policy a reality. In fact, just four Republican votes combined with the 24 Democrats who signed the petition would be enough to require Leach to open hearings.
The Committee needs to make a decision about whether it is up to carrying out its responsibilities and jurisdiction regarding the Federal Reserve. If it decides to dodge its jurisdictional duties and continues to serve only as a cheerleading squad for the Fed, the House should consider assigning the oversight functions to some other Committee.
The issues are too critical to the nation to be left in the hands of reluctant leaders who appear to be torn between their allegiance to a big bank run government bureaucracy and their responsibility to the American people.