The Fedeal Reserve

Floor Speech


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 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?

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 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 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-