Federal Reserve Board ‘Trying to Do Too Much,’ Congressman Says

May 9, 2012 - 5:50 PM

Barney Frank

FILE - In this Dec. 22, 2010 file photo, Rep. Barney Frank, D-Mass. applauds at the Interior Department in Washington. Frank's office says he won't seek re-election in 2012. (AP Photo/Evan Vucci, File)

(CNSNews.com) The more the Federal Reserve Board does, the less responsibility Congress and the White House take for making the right fiscal decisions, Rep. Kevin Brady (R-Texas) said Tuesday during a House Financial Services subcommittee hearing on the Federal Reserve Board’s effectiveness.

Rep. William Lacy Clay (D-Mo.) asked Brady, who testified as a witness at the hearing, what the Fed and Congress can do to get people back to work.

“Currently the unemployment rate, according to the Labor Department, is 8.1 percent. What can the Federal Reserve and Congress do to put Americans back to work?” Clay asked.

The Federal Reserve Board “is trying to do too much,” said Brady, one of three congressmen to testify at the hearing.

Brady has introduced H.R. 4180, which is designed “to amend the Federal Reserve Act to improve the functioning and transparency of the Board of Governors of the Federal Reserve System and the Federal Open Market Committee, and for other purposes.”

“They’re trying to make up for, I think, some failed economic policies, in my view, from the White House. And 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,” Brady said.

“I believe the more the Fed does, the less responsibility Congress and the White House is taking for getting the right fiscal decisions right, getting the right tax policy, getting balanced regulations, ensuring the right spending levels and entitlement reforms that actually create that uncertainty,” he added. “So, I really believe as the Fed does more, Congress is doing less, and 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?” Clay asked Brady.

While Brady thought it was “helpful” and “important, especially long-term, to get our transportation policy right,” he said suggested “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, a deterrent to new job creation in America,” he added.

Ultimately, though, Brady said the Federal Reserve cannot control employment.

“So yeah, there’s a lot of things Congress can do right, and there’s a reason the Fed said ‘In the end, we’re not setting an employment target, because in the end, we can’t control employment,’” Brady said.

Rep. Barney Frank (D-Mass.) advocated “a two-step procedure – long-term deficit reduction with some shorter-term stimulus.”

“The fact is that 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,” Frank said.

States have 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 policy’s a grave mistake,” he said.

Frank would rather see reductions in the military budget and said President Barack Obama is taking too long to withdraw troops from Afghanistan.

“Unlike many of my Republican colleagues who think the president wants to get out of Afghanistan too quickly, I think he wants to stay there too long. I think there is a great deal of room for reduction in the military budget. I think that 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 our Medicare and Medicaid,” Frank said.

Frank advocated a short-term increase in spending and stimulus at the federal level and to states. Giving money to the states would stimulate the economy, he said. “You give money to the states – they’re going to hire some people, who in turn will be spending some money,” the Massachusetts congressman said.

Frank didn’t see the harm in requiring “people making more than $1 million a year” to pay $56 for every $1,000 they make over that.

“I think it has been proven by economic history – that it has no negative effect, and it allows us to do a long-term deficit reduction with some short-term help for the economy,” Frank said.

He said when he voted for President Bill Clinton’s tax proposal in 1993 it didn’t hurt the economy as some had predicted.

“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. And in the years afterwards, we had a very good economy. I don’t have to claim that the higher taxes marginal rate increase, a fairly small amount caused that good economy. It clearly didn’t interfere with it,” Frank added.

Frank, ranking member of the House Financial Services Committee, has introduced H.R. 3428 “to amend the Federal Reserve Act to replace the Federal Open Market Committee members representing the Federal Reserve banks with additional members appointed by the president, and for other purposes.”