private companies that won't at some point be made public. i think that has reflected well on what they've done and suggested there was something going that haven't been proven true. i filed legislation to remove the regional presidents from the voting power that they have. it was pointed out to me that would have a problem of diminishing geographic representation, so i submitted a version that would have appointees appointed to the board a. pointed by the president, confirmed by the senate, from various regions. the problem you have now is this. the regional presidents are picked by bankers. it's an extraordinary power. that the fmoc has. i cannot think of another element in american government where there is formal binding legal power given to the representatives of the industry that's in question.

i don't think the american people are aware of the undemocratic nature of this, to have bankers who pick the regional president who in turns picks boards, which are primarily from industry and dominant in the financial industry. to have them setting the policy seems gravely mistaken. i think you can get to a presidential set of appointments without diminishing geographic diversity, and that's what we've done. beyond that, i do feel somewhat compelled to come to the defense of the bush administration. the single most important economic appointment made by president bush was, of course, chairman bernanke. he'd been his economic advisor, chairman, then became head of the fed. frankly, i think people have been unfairly critical of mr. bernanke. he's obviously been reappointed and reconfirmed by the senate. but once again, there have been predictions that haven't been born out. the interventions by the fed to deal with the problems that we had from the financial crisis

have not led to inflation. inflation is not at the point where it has become a serious problem for people. the interventions they've made have actually made money for the federal government. they have not added to the deficit. as i said, the opening shows they haven't caused problems in terms of any kind of conflicts of interest. we did make some changes in the legislation that was passed. we mandated much more openness. we repealed that part of the bill that said the fed could give money whenever it thought it was important to do so, if they thought they might get paid back. the best example of that was aig. unilateral intervention by the federal reserve. we still are owed some money. we replaced that with some other ways to go. finally, i think it would be great to appeal the dual mandate. yes, it is true that in the long run, monetary policy means what people have said. but as we know, the fact that something means something in the long run does not mean that's

the only run, that there are not times in the shorter run, in the intermediate run, when a balance is necessary. i would say this, mr. chairman. i can make a procedural motion. i have a bill dealing with the presidents. i think we have a central issue here in the bill that my colleague from texas has put forward. i will agree with him on one point, when he said that the dual mandate is not in the constitution. i agree. neither is the federal reserve. it was made up in about 1912. wasn't in the constitution. in fact, alexander hamilton tried to put it in there. got his brains beat out a couple times. the question is this, there are very big difference -- to some extent, they're partisan. partisan differences can be carried too far, but they're also at the heart of democracy. it's entirely legitimate. to have contending groups with different views. there's clearly a major party difference. there are those of us who think unemployment is a very serious problem that deserves being

addressed explicitly. i would urge you, let's put it out there. let's have a committee markup. let's bring it out. let's debate that one before the election. let's not have it be a stealth presence with the american people to take way the concern over employment after the election. >> i thank the gentleman. i thank both members for their opening statements. i ask unanimous consent to include in the record statements by the subcommittee today. without objection. i will now yield myself five minutes for questions. the first question i have is for congressman brady. i love the title of your bill, the sound dollar. that's something i think is so important. but it seems to get a sound dollar, we need to have something we can define. do you have a definition in order to give us an idea what

our goals are? divorced, maybe, from the policy. how do we define the unit of a count -- because it was precisely defined for a good many years. as a matter of fact, up until 1971 in a relative way, it always had a precise definition. do you have, in your own mind, a definition for a sound dollar? >> i do. in my mind. we didn't include it in the legislation. right now, the fed has identified a 2% inflation target, which seems reasonable over time, but truth of the matter is, we want a rules based inflation targeting. we want the fed to stop the interventionist policies and to focus on staying within the lines, both inflation and deflation. that is the strongest foundation for economic growth. mr. frank likes to point out this is an either or.

it's not. the fed does not do, and cannot do a good job at job creation. as the chairman and the members agree. but over time, in fact, preserving the purchasing power of the dollar does create the strongest economy for the u.s., or at least the opportunity for it. so, no, there's not explicit target in the bill itself. >> so in a way, you define the dollar by achieving price stability. >> we don't use a strong dollar or weak dollar, but a sound one. >> because there are many free market economists who don't concentrate on that. as a matter of fact, want a flexible pricing level, not a fixed pricing level. how would the monetary policy have been altered in the 1920s? a lot of people said there's no inflation because prices were

stable, relatively stable because productivity goes up. if prices are relatively stable due to productivity, but then there still are distortions in the market, say in the stock market that led to the 1930s, can't you be deceived if you concentrate, you know, on prices rather than looking at the total picture of the mall investment. i know you mentioned about not monetizing debt, but how would you adjust for the fact that the price level doesn't give you the information? even today, a lot of prices, in spite of the monetary inflation, some prices are going down, like in electronics. at the same time, you know, the price of an education, the cost of education skyrockets. how would you adjust for that? >> thank you.

i have long ago learned, never discuss fed history with you, dr. paul, since you're as knowledgeable as anyone on the planet that way. but looking a little closer in history, the last 40 years, what we saw in the 1970s was a great lesson. we were told we couldn't have high unemployment and high inflation at the same time. not only did it, the fed in the venti -- interventions, go, stop, go, stop, actually created a stop, actually created a volatile economy with deep and frequent recessions. when the fed focused back on a single mandate of price stability, 1979, that changed. for almost 20 years, we had not only strong economic growth, but we had very short, very shallow recessions. we saw the benefits of that focus on price stability. in the 2000s, we saw the fed keep interest rates too late for too long. it helped inflate a

credit-fueled housing bubble and helped create a global financial crisis, and to sort of wrap that up to your immediate question, within the sound dollar act, not only do we focus on rules based inflation targeting, but we require the fed to monitor and report back on these potential asset bubbles to monitor the price of gold, other commodities, equities, bonds, commercial real estate agriculture, real estate industrial, real estate as well. we don't force them to act on that. that circumstance will vary. we want to ensure to your point that not just the price index of

goods and services, but those potential asset bubbles not only be monitored but reported to you and i and to the public as well. >> i have a question for mr. frank, but i'm out of time. i think there's going to be a second round, so hopefully i can get my question asked. i now yield to mr. gray. >> thank you so much, mr. chairman. let me ask both witnesses. currently, the unemployment rate, according to the labor department, is 8.1%. what can the federal reserve and congress do to put americans back to work? mr. brady, you have any thoughts, views on that? >> i do. one, i think the fed is trying to do too much. they're trying to make up for, i think, some failed economic policies, in my view, from the white house. i also believe -- they're sort of like the doctor who gives you a pill every five minutes and says, how are you feeling? take another one. how are you feeling?

take another one. as a result of creating uncertainty, i believe the more the fed does, the less responsibility congress and the white house is taking for getting the right fiscal decisions, getting the right tax policy, getting balanced regulations, ensuring the right spending levels, and reforms that create that uncertainty. i believe as the fed does more, congress is doing less. in the long term, that slows our recovery. >> don't you think that congress could be doing something now as far as passing a transportation bill, which would be a job starter? >> you know, ranking member clay, i think it's important, especially long term, to get our transportation policy right. i think that would be helpful. i also think taking off the table this discussion of higher taxes. you know, this tsunami of

regulation hitting these businesses. the president's health care plan, in my view, is a real, right now, a real deterrent to new job creation in america. so, yeah, there's a lot of things congress can do right. there's a reason the fed said, in the end, we're not setting an employment target because until the end we can't control employment. >> mr. frank, what do you think the federal reserve and congress could do? >> i think they have been very helpful. i think the policies in brady's bill would prohibit the future. we would have been worse off if it hadn't been for them. the interventions the fed has taken have been helpful to us. first of all, in helping to provide the funding that's helped our economy. secondly, and i think there's a real point of difference between the parties. i was surprised by it. i think the role of the federal reserve in working with europe, working with european central bank has been helpful in avoiding the kind of serious downturn in europe, which will be negative effects on us. i think the federal reserve -- >> excuse me.

check on your mic. >> thank you. with the european central bank have been very helpful. to have prevented the federal reserve from that kind of cooperation, increasing the chances of trouble in europe, would have been, i think, a very grave error. secondly, as far as congress is concerned, we have the major activity. we should be following a two-step procedure. long-term debt reduction. the fact is the unemployment rate is higher than it would have been if we had not forced by a variety of fiscal policies state and local governments to fire 600,000-plus teachers and firefighters and public works employees and police officers. i think that's been a very -- they've been hurt because many of them are financed primarily by the property tax. property values went down. i think forcing those reductions by inappropriate federal policies is a great mistake.

yes, it's important for us to reduce a deficit long term. unlike many of my republican colleagues who thinks the president wants to get out of afghanistan too quickly, i think he wants to stay there too long. i think there's room for reduction in the military budget. i think we should be -- and we'll be fighting about this in the budget. do we cut the military or restrain the military, or do we cut medicare and medicaid? i would be for a short-term increase in spending and stimulus at federal level here. if you give money to the states, they're going to hire people, who will be spending money. as for taxes, i heard the argument that higher taxes were going to kill the economy in '93 when i voted for the tax proposal put forward by president clinton. in the years afterward, we had a very good economy. i don't have to claim that the higher taxes marginal rate increase of a small amount caused that economy. people are making more than $1 million a year. for every $1,000 they make over that, tax them for $56.

it's inconceivable to me. i think it's been proven by economic history it has no negative effect and allows us to do a long-term deficit reduction with short-term help for the economy. >> thank you so much. >> i yield five minutes to the gentleman from arizona. >> would you like me to yield you a couple minutes to finish your previous question? >> pardon me? >> would you like me to yield you a couple minutes to finish where you were at? >> oh, thank you. yes, absolutely. thank you very much. >> mr. chairman, i would rather be grilled by him than yourself, if that's okay. >> no, i saved this one for the ranking member. >> okay, okay. go ahead. >> you know, the big argument is dual mandate or one mandate. i'm sort of a pretty much a skeptic on what we get from the

fed. i think they generally can find an excuse to do whatever they want to do, so i know that's important argument, and it's going to go on for a while. i'm not, you know, hopeful that, in itself, will solve the problem. because i think they're rather independent in what they do. i want to ask you a question, mr. frank, about, you know, the appointees, whether they're approved by the senate or not. because a lot of people that i talk to are very interested in this subject. you know, they -- they're very concerned about the fact that this isn't a government operation. this is a private operation. they don't like the private. now, do you think you fully answer that, or do you partially answer the question by saying people have to be approved by the senate? has this become less private and less sinister? >> i wouldn't say sinister.

i don't think the people on the federal reserve regional boards who are predominantly from the financial industry in terms of influence, when they pick a president, who in turn picks the new people. that's not sinister. they're people of goodwill. i diminish the extent to which it's private sector by not having them vote. there's another thing we could do. you were absent when we voted here during the reconciliation markup on whether or not to subject the federal reserve to the appropriations process. not monetary policy, but there was a proposal, as you know, to subject the consumer financial protection bureau to the appropriations process. it would seem to be another step that could be taken. i'm not for it myself. but for those who are worried, i would think consistency would say why not subject the federal reserve, including the regional entities, to the appropriations process? i think if you said -- now, there is an alternative in terms of the regional presidents and having senate confirm.

i think that might be worse. yes, i think i partially -- i diminish the private sector element. people who are concerned about it more than me might subject it to appropriations. >> i'm sorry. i don't want to use all his time. i yield back my time. >> you're not going to comment on the appropriations process? >> he's just sorry he wasn't here. thank you, mr. chairman. one of the things i've been trying to get my head around is with the dual mandate. this is for both our honored members here. does it ultimately, do you think -- because, okay, here we're chasing inflation.

here we're chasing employment. does that also allow us, as members of congress, often to avoid tough decisions, whether they be on fiscal policy? >> i don't see how it does. first of all, i reject the notion that we, as elected officials, should be blaming the feds. it's our fault if we don't step up. the problem is, we have very different views about how to do it. that's democracy. some people want to raise taxes on the wealthy and restrain the military and make some domestic restraints. others want to do others. we don't know nobody who doesn't have views on this. but no, i don't see the fact there's a responsibility somewhere else that in any way allows us -- >> you did say one truism. that is ultimately it's our responsibility. >> yes. >> in my, what, 16 months here, i find policy-wise, we do lots of trying to push it off to regulators. others, you do the work. that way we have this sort of plausible deniability. >> by the way, i think that's especially the case with regard to military activity. in my 32 years here, when i have seen us get involved in military activity without congressional authorization, it has not been so much executive overreach as congressional ducking.

>> okay. i'm going to agree with you on that one. >> answer is yes, absolutely. as the fed tries to do more, congress is using that in the white house as an excuse not to take the key steps necessary to create the business climate for recovery. if, in fact, the dual mandate is the right answer and the fed is in charge of the economy, they're certainly not doing a good job. weakest recovery since the great depression. lowest number of workers in the work force. despite the stimulus, the bailouts, auto bailout, housing bailout, stimulus to cash for clunkers, there's fewer americans working today than when president obama took office. at the end of the day, it's our responsibility. >> mr. chairman, thank you for yielding back to me. >> i thank the gentleman. i yield five minutes to congresswoman maloney from new york. >> thank you very much. thank you for calling this

hearing. i would like to ask mr. brady to respond to a statement from alan blinder in their paper of 2010. they argue that the federal reserves actions during the economic crisis were more powerful and effective than anything that congress did fiscally through the stimulus. i would argue that the fed's pursuit of the dual mandate contributed to avoiding an all-out economic collapse and helped fuel our economy. so i'd specifically like to ask my colleague, can you cite any example of how the dual mandate in any way hindered the recovery? most economists believe that it was helpful in the recovery. >> i think there are a couple key issues here. one, the fed's actions in the mid-2000s, keeping interest rates too low for long, helped

bring about crisis they later intervened in. >> that happened during greenspan's days. >> we're talking the fed as it is today and its actions over the last four decades, truly. secondly -- >> but we're discussing it -- because i want to make sure you're answering the question on this point, if i could make it clear, what we're looking at now is the recovery, the actions that took place by bernanke and others in response and would have -- and you were saying the interest rates were too low, would keeping interest rates high to avoid inflation have been a sensible policy during the crisis when we were looking for recovery in 2008 and 2009? that's the time that we're looking at, how the dual mandate responded to the economic crisis, and i would argue that it was helpful. my question specifically --

>> i actually wanted to give you a yes to your answer. >> oh, really. >> during the financial crisis, even though the fed frankly helped fuel it, some of their actions they took during the financial crisis truly did calm those waters? stop there and look at the academic recovery since. in my view, pursuing the dual mandate, in some ways for the first time identifying it as a way to not only intervene for example in the housing market and then continuing to intervene as well rather than allowing exiting that market, continuing to allocate credit around the united states, creating this uncertainty on what will the fed do next has actually, in my view, hindered the recovery. if you look at three points, did they help fuel the financial crisis, yes? were they helpful during it? yes. from recovery on in truth, no. in my view, we're not at the job levels we should be, in part, because it's congress's role to

set the fiscal policy to create the business climate so a recovery can occur. >> well, if the fed had been constrained because they did not have the dual mandate in moderating inflation only and would the recovery be what we are experiencing now? they were able to keep the -- if all they had to do was look at inflation, they would have been raising interest rates. you know, they lowered them in 2008 and '09 which was very important because they had the dual mandate. if they were constrained to moderating only inflation, if that was the only thing they could have looked at, they wouldn't have been lowering the rates. having the dual mandate, most economists are arguing gave them the flexibility to react quickly to the marketplace. i would also like to hear from the ranking member, mr. frank. >> i would like to respond to that because i think i can shed

a little light on it. >> first, i want to talk about the comment about the fed's role in inflating things during the greenspan years. i agree, but not by keeping interest rates in general down, but by explicitly refusing to follow the mandate this congress gave the federal reserve in 1994 in the homeowner's equity protection act and subsequent efforts. many of us did believe loans were being made imprudently to people who couldn't pay them back. there were two ways to deal with that. some argued that would deflate the economy as a hole. that would have been a mistake. there was an option, use any authority the fed was given to ban imprudent loans to people who couldn't afford them. mr. greenspan flatly refused to do that and later acknowledged that was an error in front of mr. waxman's academy and during

2004 and '05, some of us on this committee tried to re-legislate that. i do think there was a problem from the fed but not for causing a deflation in the economy or mess in general, it was refusing to use the specific tool they were given to stop the bad loans from being made. >> my time has expired. thank you. >> i thank the gentle woman. i now recognize mr. -- for five minutes. do you believe we need an entity that can be the entity that put the finger in the dike when something starts to happen? >> the answer is yes, in some regards, addresses miss maloney's question. under a single mandate, focused on the purchase power of the dollar, could the fed intervene? in times of mercy?

the answer is yes. they would still be the lender of last resort and provide liquidity to those banks and still have liquidity problem but are solvent and ability to increase or decrease interest rates to tighten or loosen money supply. they would still in a single mandate have the ability to intervene in unusual and exigent situations. what they would not be allowed to do, continue to intervene far beyond that financial crisis again contributing to the uncertainty today. >> it would seem that looking at the last 20, 30 years, their ability to impact our economy is greatly exaggerated on both ends. it would seem to me they can nibble around the edges on these but if they actually had the ability to control unemployment we wouldn't have the situation we have today. if they control inflation we wouldn't have the situation we

had over the last several years, as long as you have an economy rolling very stable they can tweak it around the edges and doesn't appear they can do much more than that. i really like your approach here. one of the questions i had with regards to the section or title 4 of your bill with regards to exchange rate responsibility, can you explain a bit about that section and how -- why you put it in here and what you want to try and accomplish with that? >> is this dealing with the special drawing rights, ending that slush fund? >> exchange policy and renaming the exchange stabilization fund. >> we have, unfortunately, over time, created, in effect a slush fund within the federal reserve both from historical, about $100 billion in there, half of that from historical dollars there and the other half more recent.

unfortunately, mr. luetkemeyer, both republican and democrat administrations related to the fed, have used that, in effect, to circumvent the power of congress. the clinton administration used those dollars to provide a bailout to mexico after congress rejected it. the current fed used it to guarantee money market funds. those may have been the appropriate efforts but those decisions should have been made by congress, not by the federal reserve. so under this bill, we end that as a slush fund. we apply the $50 billion to reduce the deficit. we, in effect, return the fed to what the fed should do in return for congress our constitutional role to act in those matters of emergency. >> what you're trying to do is rein them in and go back to the established principles or mission of what they originally should have been and get it more in line wi w