lieve that ignorance is better than knowledge. But one of the major conclusions of microeconomic theory is that thorough and complete information is a requirement for markets to work efficiently. This applies to financial markets as well as to markets for goods and services. Second, secrecy is unfair to small investors. In his testimony Chairman Greenspan argued that immediate release would impair the Federal Reserve's flexibility to react quickly in times of acute financial unrest and could result in increased instability in financial markets if investors overreact to particular announcements. Our bill does not require the Federal Reserve to announce every day-to-day move it makes in conducting monetary policy. It requires only that the Federal Reserve release changes in intermediate targets, targets set during the periodic meetings of the FOMC. In practice, this would requiure immediate release of the FOMC's directive to the open market desk of the New York Federal Reserve Bank, plus any other major policy changes that the FOMC agrees to between formal meetings. The Fed would still be able to operate day to day under the same rules it currently follows and would still be able to react quickly to market crisis. The possibility raised by Chairman Greenspan that immediate disclosure would cause financial market instability ignores the fact that it is ignorance and not knowledge about Federal Reserve decisions which creates the kinds of rumors that are unsettling to the financial markets and cause gyrations in bond and stock prices. The fourth provision is GAO audits. Our bill would permit the Comptroller General to conduct more thorough audits of Federal Reserve operations by removing selected current restrictions on GAO access to the Federal Reserve. The General Accounting Office is the watchdog of Congress. It carries out that responsibility through financial and program audits of Government agencies. These audits are of great value to the Congress. Not only do they ferret out waste and abuse, they perform the even more important function of telling Congress when programs are not working and where programs can be improved. In his October 25th testimony Chairman Greenspan protested that GAO audits would duplicate functions that are already performed, including financial audits by the Federal Reserve itself and congressional oversight of monetary policy, and would stifle free discussion of policy alternatives by members of the FOMC. Although the Board of Governors does currently conduct a thorough financial examination of each of the Federal Reserve Banks through its operations review program, and the Board of Governors is audited by Price-Waterhouse, these examination do not result in certified financial statements of the kind auditors would prepare for a private bank or corporation. While GAO audits of the Federal Reserve's financial condition might overlap the Federal Reserve's own efforts, every Government agency that takes in and spends billions of dollars each year ought to be subject periodically to outside review. We are not accusing the Federal Reserve of dishonesty. We just believe that the GAO should have more complete access to the Fed's financial statements. What the Federal Reserve does not do under current practice is subject its practices and procedures to outside review, and this is where GAO audits could be even more valuable. Congressional oversight of complex issues benefits greatly from the kind of indepth examination that can be conducted only by the GAO. It is true that Congress holds frequent hearings on monetary policy. This subcommittee holds valuable annual hearings on the Fed's budget. But complex issues should not be left solely to hearings. The congressional oversight responsibility is better carried out if it is better informed through studies that are analytic, independent and based on full information. Chairman Greenspan's concern that GAO audits would inhibit FOMC deliberations confuses access to information with disclosure. There are many instances where GAO has access to information that it cannot publicly disclose. For example, in its audits of banks and other financial institutions the GAO is prohibited from disclosing information identifying an open bank, an open bank holding company or a customer of an opened or closed bank or bank holding company. The GAO has access to the finances of the President and the Vice President of the United States. When it audits any part of these records, however, it is prohibited from disclosing its findings, unless they involve criminal activity. If needed, our bill could be adjusted to include similar provisions. Finally with respect to the budget. This provision of the bill would require that the Federal Reserve's annual budget be published in the Budget of the U.S. Government. The Fed would submit its budget for the current year and the 2 following years to the President by October 16th of each year, and the President would be required to print the Fed's budget in the Government Budget without change. Despite the fact that the Federal Reserve takes in and spends billions of dollars each year, the Federal Reserve's budget is not conveniently available to Congress or to the public. Only a small fraction of the Fed's $1.6 billion of operating expenses is included in the U.S. Government Budget, $90 million, as I mentioned earlier, of expenses incurred by the Board of Governors in Washington. The details on this part of the Fed's budget, 6 percent of the Federal Reserve's total spending, appear in part IV of the Budget Appendix in a section entitled "Government-Sponsored Enterprises." In his testimony Chairman Greenspan argued that the Federal Reserve's functional independence is inseparable from its budgetary independence and that publishing its budget in the Government Budget would require the Fed to keep two sets of books at the cost of millions of dollars. H.R. 3512 will not reduce the Federal Reserve's control over its own budget. The bill would not subject to the Federal Reserve to the congressional appropriations process, nor would it give either Congress or the administration any control over Federal Reserve spending. All it does is require that the data be published conveniently in the U.S. Government Budget where spending by every other Government agency is already listed. This includes the Su preme Court, which has its budget published in the Government Budget without any loss of independence. The bill will not require the Federal Reserve to maintain two sets of books. Although the Fed does not use the Federal fiscal year or Government accounting principles for its accounts, the Fed would not be required to adopt them by our bill. It would be useful, but not required. We just want the Fed's data on its budget to be published along with the rest of Government spending in the Budget of the U.S. Government. Adopting the bill would thus implement a basic principle of democracy that no Government agency should take in and spend billions of dollars without having its budget readily accessible to the public. These are the specific provisions of H.R. 3512. Before concluding, let me address two more general arguments used by the Federal Reserve and others to oppose the bill. First, "If it ain't broke, don't fix it." This objection assumes that the effect of H.R. 3512 will force the Federal Reserve to alter its conduct of monetary policy, which would harm the economy of the United States. This fear is based on a misreading of H.R. 3512. Nothing in the bill would affect the conduct of monetary policy. In fact, we revised the original version of the bill to eliminate a provision that many observers thought could have forced a change in monetary policy. Nonetheless, H.R. 3512 does address a problem that does need to be fixed, the complex problem of Federal Reserve accountability in a democratic society. Congressman Dorgan and I believe the five provisions of the bill would do that in a responsible way, the most responsible way possible, without jeopardizing the Fed's independence or injecting politics into monetary policy. We do not think Congress should wait until a monetary crisis to reform the Federal Reserve. Our bill takes advantage of a period of high regard for the Fed and a moment of economic calm to bring Fed procedures up to date. If we wait to make the necessary adjustments until a time of economic turbulence and controversy, the results may be far less measured. The second objection is that Congress and the President are not responsible enough to have control over monetary policy given the mess we've made of the budget. This objection also completely misreads H.R. 3512. There is no provision in the bill that would give Congress or the President control over monetary policy. If someone wanted to politicize monetary policy, our bill would not be the way to do it. This bill does only two things. It removes some of the veil of secrecy that surrounds the Federal Reserve by shedding some light on its policies and practices, and it establishes a formal channel of communication between the President and the FOMC. Our bill of course, is not the only way to accomplish these goals, although we have taken care to include only provisions that would not interfere with the Fed's independence. We would be happy to have the subcommittee's suggestions, and others of course, for improvements in the bill. In our Nation the Government must be accountable to the people. The Federal Reserve, with its enormous power over the economy and the well-being of the American people, does not meet the normal standards of accountability in a democracy. The bill that Representative Dorgan and I introduced will make the Fed more accountable without impairing its ability to conduct monetary policy by establishing a formal channel of communication between the FOMC and the administration and by shedding more light on its practices and procedures. Thank you very much, Mr. Chairman. Chairman NEAL. Thank you, sir. Thank you very much for your very thoughtful testimony. I know that you've spend a lot of time on this subject, and I certainly want to say I appreciate it. I do have a couple of thoughts on how you might improve the bill, and I'll be glad to share those with you. [Laughter.] Mr. HAMILTON. Well, I look forward to that discussion, Mr. Chairman, because you and your colleagues are acknowledged experts on this matter. Chairman NEAL. Well, we'll see about that. At this time we would like to hear from our distinguished colleague, Mr. Dorgan. We'll put your entire statements in the record, and please feel free to summarize as you choose. STATEMENT OF THE HON. BYRON L. DORGAN, A REPRESENTA- I will submit a statement for the record and would intend to summarize. And in light of the thorough manner in which this subject was covered by my colleague, Mr. Hamilton, I shall try not to be duplicative. But I do want to add to some of the discussion offered by my colleague from Indiana, Mr. Hamilton. Someone suggested to me yesterday that this is almost an example of two extremes, a clash of cultures almost, of Congress discussing behavior of the Fed. It is an institution, the Congress, the most porous, open institution whose decisions are made in the glare of the spotlight of public scrutiny. And perhaps the most secretive, closed institution, the Federal Reserve Board whose decisions are conducted behind closed doors and out of the range of public scrutiny. The Fed, as all of us know, is 76 years old. It has aged well. It is an institution that has been involved in thoughtful and thoughtless discussion over these many years about the role it plays in this country's economy. It has been vigorously supported by supporters that are blind to its faults and aggressively assaulted by opponents impervious to its strength. We are not here today suggesting legislation that would propose, as was offered in one column, sweeping reforms of the Fed. In fact, some have been winning debates on a piece of legislation we have never introduced. They suggest that these sweeping reforms that are offered by Congressman Hamilton and myself are thoughtless and dangerous and they go ahead and then win the debate in the next 20 paragraphs of their column. Well, that is a debate they can win because it's not legislation we have introduced. We have proposed modest, thoughtful changes that we think are necessary and would strengthen the operations of the Federal Reserve Board. The country's economic game plan is an interesting one. About one half of the economic game plan is in the hands of those who conduct monetary policy in this country; the other half perhaps, if one could divide it, is in the hands of those who conduct fiscal policy. And if you look at the 200 years of financial history in this country and in especially the last 75 or so in which we've had a Federal Reserve Board, blame is passed back and forth, depending on the decade or who is responsible for the problems in this country's economy or who ought to be rewarded for the strengths or successes in this country's economic performance. I think Mr. Hamilton would agree that we have not come to you today to suggest that we turn the reigns of monetary policy over to the U.S. Congress. We are not here to suggest that when the Open Market Committee meets that its members be members that reflect the interests of the fiscal policy of an administration operating fiscal policy at the time. That is not our intent. Our intent is to try to suggest some modest changes that we think can improve the Fed. Let me take the first because I think it is the most interesting. We have a Federal Open Market Committee that by its actions using two mechanisms can substantially and immediately affect this country's economy in a rather dramatic way. Yet, those decisions are made behind closed doors by an organization, the Open Market Committee, that is not in any way formally connected to an information channel in order to understand and evaluate what the other half of our Government is doing. It seems to be that the appropriate monetary policy should not result from a merely coincidental or accidental understanding or coincidental or accidental development of information about what those who are embarked on fiscal policy are doing. It seems to me that the risk of not having appropriate information about the conduct of fiscal policy is enhanced by not having some formalized method of communicating between the Executive Branch conducting fiscal policy and the Federal Reserve Board conducting monetary policy. Now the modest suggestion that we proposed to remedy that is often misconstrued by those who have not either read it or misunderstand it. The suggestion is that somehow the thrice yearly meetings we proposed would politicize the Fed. My guess is they think apparently that we are suggesting that these meetings be a part of the Federal Open Market Committee decisionmaking meetings, and that the folks that we're suggesting they meet with be part of the decisionmaking, and that's simply not the case. We are talking about information meetings conducted on a thrice yearly basis. I think if you go all of the way through the testimony by Congressman Hamilton and read the legislation that was introduced, you will see that much that has been written and said about our |