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S. HRG. 103-905

NOMINATIONS OF:
JANET LOUISE YELLEN AND JULIE D. BELAGA
HEARING
BEFORE THE

COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
JANET LOUISE YELLEN, OF CALIFORNIA, TO BE A MEMBER OF THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
JULIE D. BELAGA, OF CONNECTICUT, TO BE A MEMBER OF THE BOARD
OF DIRECTORS OF THE EXPORT-IMPORT BANK

JULY 22, 1994
Printed for the use of the Committee on Banking, Housing, and Urban Affairs

U.S. GOVERNMENT PRINTING OFFICE
86-663

cc

WASHINGTON : 1995

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0 - 16-046695-4

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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
DONALD W. RIEGLE, JR., Michigan, Claairm411
PAULS. SARBANES, Maryland
ALFONSE M. D'AMATO, New York
CHRISTOPHER J . DODD, Connecticut
PHIL GRAMM, Texas
JIM SASSER, Tenneaaee
CHRISTOPHER S. BOND, Missouri
CONNIE MACK, F1orida
RICHARD C. SHELBY, Alabama
JOHN F. KERRY, Maaaachuaette
LAUCH FAIRCLOTH, North Carolina
ROBERT F. BENNETT, Utah
RICHARD H. BRYAN, Nevada
BARBARA BOXER, California
WILLIAM V. ROTH, JR., Delaware
BEN NIGHTHORSE CAMPBELL, Colorado
PETE V. DOMENIC!, New Mexico
CAROL MOSELEY-BRAUN, nlinoia
PATTY MURRAY, Washington
STEVEN B. HARRIS, Staff Director and Chief Counsel
HOWARD A. MENELL, &publican Staff Director
PATRICK J . LAWLER, Chief Economist
PATRICK A. MULLOY, Senior Counsel/lntemational A/faira Adviser
EDWARD M. MALAN, Editor
(II)

CONTENTS
FRIDAY, JULY 22, 1994
Page

Opening statement of Chairman Riegle ................................................................
Opening statements, comments, or prepared statements of:
Senator Boxer ...................................................................................................
Senator Faircloth ..............................................................................................
Senator Sarbanes ..............................................................................................
Senator Sasser ..................................................................................................
Senator D'Amato ...............................................................................................
Prepared statement ...•.....•.........................................................................
Senator Dodd ....................................................................................................
Prepared statement ...................................................................................

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5
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7
14
35
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35

WITNESSES
U.S. Senator Joseph I. Lieberman .........................................................................
Prepared statement ..........................................................................................
U.S. Representative Christopher Shays ................................................................

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NOMINEES
Janet Louise Yellen, Ph.D., of California, to be a Member of the Board
of Governors of the Federal Reserve System .................................................... .
Prep ::i.:~ht;ment .......................................................................................... .

8

The goals of monetary policy ................................................................... .
The tactics of monetary policy ................................................................. .
Biographical sketch of nominee ...................................................................... .
Response to written questions of Senator Riegle .......................................... .
Julie D. Belaga, of Connecticut, to be a Member of the Board of Directors
of the Export-Import Bank ................................................................................. .
Prepared statement ......................................................................................... .
Biographical sketch of nominee ...................................................................... .
Response to written questions of:
Senator Riegle .......................................................................................... .
Senator Murray ........................................................................................ .

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ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

New York Times, June 26, 1994, article by Paul Krugman entitled, "No
Great Crisis in the Dollar's Drop" ......................................................................
Washington Post, July 3, 1994, article entitled, "It's the Yen That's Out
of Control" .............................................................................................................
Wall Street Journal, July 22, 1994, article by Lucinda Harper quoting Under
Scc1;,tary Summers entitled, "Treasury Official Plays Down Pull of Inflation
Fear ..................................................................................................................... .

J:

0

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~.~~

~~~~~~~~~ ~~~_i.~~~~'.

W!!r~~nte>~ ;;~,t~~al~iy
.. ~:. ..
.. ~:...
..
New York Times, July 22, 1994, article entitled, "New Jobless Claims Rise" ...
Washington Post, July 22, 1994, article by Peter Behr entitled, "Clinton
Helps Raytheon Win Brazilian Contract," subtitled, "$1.4 Billion Satellite
Project Goes to U.S. ............................................................................................ .
(Ill)

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NOMINATIONS OF:
JANET LOUISE YELLEN, OF CALIFORNIA, TO
BE A MEMBER OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
JULIE D. BELAGA, OF CONNECTICUT, TO BE
A MEMBER OF THE BOARD OF DIRECTORS
OF THE EXPORT-IMPORT BANK
FRIDAY, JULY 22, 1994

U.S. SENATE,
URBAN AFFAIRS,
Washington, DC.
The Committee met at 10:14 a.m. in room 538, of the Dirksen
Senate Office Building, Senator Donald W. Riegle, Jr. (Chairman
of the Committee) presiding.
COMMITTEE ON BANKING, HOUSING,

AND

OPENING STATEMENT OF CHAIRMAN DONALD W. RIEGLE, JR.

The CHAmMAN. The Committee will come to order. Let me welcome all those in attendance this morning and apologize for a little
delay in our starting time.
I am going to invite our colleague, Senator Lieberman, to come
on up to the table. I know he wants to make an introduction of one
of our two nominees this morning. We are delighted to have you.
I know Senator Dodd will also want to introduce one of our nominees at a later time, and so., Senator Lieberman, we are pleased to
have you here and we woula like to hear from you now.
OPENING STATEMENT OF JOSEPH I. LIEBERMAN
A U.S. SENATOR FROM THE STATE OF CONNECTICUT

Senator LIEBERMAN. Thank you, Mr. Chairman and Members of
the Committee. I aprreciate your ~ourtesy to me. Senator Dodd will
be here in a while. am pleased to be able to come by at this moment to introduce and speak in support of President Clinton's nomination of Julie Belaga, of Connecticut, to be a Director of the Exim
Bank.
Mr. Chairman, it amazes me how long Julie and I have known
each other since we are both obviously so young and vibrant, but
it has been a long time since we served in the State legislature together, since we worked together when Julie was a Regional Administrator for the United States Environmental Protection Agency. She continues in public service in Connecticut today as a mem(1)

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her of the Board of Directors of the Connecticut Development Authority and serving also on the Connecticut Environmental Industries Initiative Advisory Board.
Julie Belaga is a great person. She is obviously bright. She is
thoughtful. She is energetic, involved. She has wanted to make a
difference and she has, in fact, made a difference.
I would say she has two abilities that are critical to this new position for which she has been nominated. One is that she has the
capacity to imagine a long-term vision here, to have some goals.
She is tough-minded enough to take us to the realization of that
vision.
Combining, as she does, particularly her background in environmental protection work with her own interest in economic development, Julie Belaga seems to me to be the perfect nominee for this
position at this time in two ways which I will mention very briefly.
First, the Congress has given the Exim Bank new responsibilities
to assess the environmental impact of the policies and projects that
the Exim Bank makes possible. Here we have the possibility of
bringing in, as a Director of the Bank, somebody whose life has
been so involved in sensitivity to environmental concerns and protecting natural resources.
Second, in a sense on the affirmative side, Congress is also giving
and will continue to give to the Exim Bank real responsibilities to
develop this booming world market for environmental technologies
which can be such a great producer of jobs for our country, and I
think she will be great in doing all of that.
Mr. Chairman, I have a full statement which I ask to be included
in the record. I thank you for your courtesy and I wish my friend,
Julie Belaga, the best in this new chapter of her distinguished career.
The CHAIRMAN. Very good. We appreciate your coming over and
sharing those thoughts with us. It is certainly important support
that she is receiving from you today and from your colleague. Let
me allow you to excuse yourself. I know you have other things to
do.
Is Representative Shays here? I am not seeing him here at the
moment. He may come as well, and so, if and when that occurs,
we will call on him for similar comments.
At this point, Senator Boxer, let me call on you to also make the
introductory comments thatlou wish to make about Janet Yellen
and then I will go ahead an make a formal statement about both
nominees this morning. I think I would ask you to do that now if
you would.
OPENING STATEMENT OF SENATOR BARBARA BOXER

Senator BOXER. Thank you very much, Mr. Chairman and Members of the Committee. I am ver; honored to be here today to introduce Dr. Janet Yellen, the President's nominee for Governor of the
Federal Reserve System.
Dr. Yellen will bring an incredible wealth of experience and expertise to the Federal Reserve. Her academic and professional
background is impressive and her list of publications and honors
are extensive. She is currently the Bernard T. Rocca, Jr. Professor
of International Business and Trade at the Haas School of Business

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at the University of California at Berkeley. She serves on the panel
of Economic Advisers for the Congressional Budget Office, and as
the Senior Advisor on the Brookings Panel of Economic Activity. I
would also add she is a wife and a mother of a 13-year-old son.
Dr. Yellen's skills and leadership will be an important addition
to the Federal Reserve during this critical time of economic recovery and transition. Last year, Mr. Chairman, as you know, we set
this Nation on a new and bold course toward economic growth. We
face very tough choices. We enacted the largest deficit reduction
packa~e in history and we have seen results. Inflation is low. Over
3 milhon jobs have been created since January 1993, more than
were created in the previous 4 years. The nationwide unemployment rate continues to drop from 7.1 percent in January 1993 to
6 percent in June 1994. This is a strong start.
But, as my colleagues know, my State of California is just stepping up to the starting block. Our unemployment rate still lags
more than 2 percentage points higher than the national average.
Therefore, the policies of the Federal Reserve are particularly crucial to California.
As we work to meet these challenges, I am proud to say that Dr.
Yellen and I have a lot in common. We were both bor;i in Brooklyn,
New York. We have both chosen the Bay area as our home, and
we both care deeply about reviving the California economy. We are
also, I think, about 5 feet tall.
[Laughter.]
As one of the most respected economists of her generation, Dr.
Janet Yellen truly understands California's unique economic problem. In her post at UC-Berkeley, she has not only focused her
writings and her teachings upon the causes, mechanisms, and implications of unemployment, but has also seen, firsthand, the personal impact of job loss felt by the people of California. I think we
need that expertise on the Fed.
Leading the international trade education program at Berkeley,
Dr. Yellen also fullr understands the golden opportunities that the
emerging Pacific Rim trade will provide for the economic future of
California and our Nation as a whole.
She is a recognized scholar in international economics and her
teaching has emphasized what U.S. managers will need to know in
order to compete in the new global economy.
With these skills and persfectives, Mr. Chairman, I believe Dr.
Yellen will serve the Federa Reserve and our Nation with great
distinction. I want to congratulate her on her nomination and once
again thank the Chairman for giving me this opportunity to introduce this truly impressive woman.
The CHAIRMAN. Thank you very much, Senator Boxer. Those are
important comments and observations and they are very helpful to
us.
The Committee this morning is going to hear from both Presidential nominees, and I want to welcome them: Janet Yellen, who
has been nominated, of course, for the 14-year term as a Member
of the Board of Governors of the Federal Reserve System and who
we will hear from a little later; Julie Belaga, who has been nominated to complete a very short term as a Member of the Board of

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2

her of the Board of Directors of the Connecticut Development Authority and serving also on the Connecticut Environmental Industries Initiative Advisory Board.
Julie Belaga is a great person. She is obviously bright. She is
thoughtful. She is energetic, involved. She has wanted to make a
difference and she has, in fact, made a difference.
I would say she has two abilities that are critical to this new position for which she has been nominated. One is that she has the
capacity to imagine a long-term vision here\ to have some goals.
She is tough-minded enough to take us to tne realization of that
vision.
Combining, as she does, particularly her background in environmental protection work with her own interest in economic development, Julie Belaga seems to me to be the perfect nominee for this
position at this time in two ways which I will mention very briefly.
First, the Congress has given the Exim Bank new responsibilities
to assess the environmental impact of the policies and projects that
the Exim Bank makes possible. Here we have the possibility of
bringing in, as a Director of the Bank, somebody whose life has
been so involved in sensitivity to environmental concerns and protecting natural resources.
Second, in a sense on the affirmative side, Congress is also giving
and will continue to give to the Exim Bank real responsibilities to
develop this booming world market for environmental technologies
which can be such a great producer of jobs for our country, and I
think she will be great in doing all of that.
Mr. Chairman, I have a full statement which I ask to be included
in the record. I thank you for your courtesy and I wish my friend,
Julie Belaga, the best in this new chapter of her distinguished career.
The CHAmMAN. Very good. We appreciate your coming over and
sharing those thoughts with us. It is certainly important support
that she is receiving from you today and from your colleague. Let
me allow you to excuse yourself. I know you have other things to
do.
Is Representative Shays here? I am not seeing him here at the
moment. He may come as well, and so, if and when that occurs,
we will call on him for similar comments.
At this point, Senator Boxer, let me call on you to also make the
introductory comments thatdou wish to make about Janet Yellen
and then I will go ahead an make a formal statement about both
nominees this morning. I think I would ask you to do that now if
you would.
OPENING STATEMENT OF SENATOR BARBARA BOXER

Senator BOXER. Thank you very much, Mr. Chairman and Members of the Committee. I am very honored to be here today to introduce Dr. Janet Yellen, the President's nominee for Governor of the
Federal Reserve System.
Dr. Yellen will bring an incredible wealth of experience and expertise to the Federal Reserve. Her academic and professional
background is impressive and her list of publications and honors
are extensive. She is currently the Bernard T. Rocca, Jr. Professor
of International Business and Trade at the Haas School of Business

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3

at the University of California at Berkeley. She serves on the panel
of Economic Advisers for the Congressional Budget Office, and as
the Senior Advisor on the Brookings Panel of Economic Activity. I
would also add she is a wife and a mother of a 13-year-old son.
Dr. Yellen's skills and leadership will be an important addition
to the Federal Reserve during this critical time of economic recovery and transition. Last year, Mr. Chairman, as you know, we set
this Nation on a new and bold course toward economic growth. We
face very tough choices. We enacted the largest deficit reduction
package in history and we have seen results. Inflation is low. Over
3 million jobs have been created since January 1993, more than
were created in the previous 4 years. The nationwide unemployment rate continues to drop from 7.1 percent in January 1993 to
6 percent in June 1994. This is a strong start.
But, as my colleagues know, my State of California is just stepping up to the starting block. Our unemployment rate still lags
more than 2 percentage points higher than the national average.
Therefore, the policies of the Federal Reserve are particularly crucial to California.
As we work to meet these challenges, I am proud to say that Dr.
Yellen and I have a lot in common. We were both bor:i in Brooklyn,
New York. We have both chosen the Bay area as our home, and
we both care deeply about reviving the California economy. We are
also, I think, about 5 feet tall.
[Laughter.]
As one of the most respected economists of her generation, Dr.
Janet Yellen truly understands California's unique economic problem. In her post at UC-Berkeley, she has not only focused her
writings and her teachings upon the causes, mechanisms, and implications of unemployment, but has also seen, firsthand, the personal impact of job loss felt by the people of California. I think we
need that expertise on the Fed.
Leading the international trade education program at Berkeley,
Dr. Yellen also fully understands the golden opportunities that the
emerging Pacific Rim trade will provide for the economic future of
California and our Nation as a whole.
She is a recognized scholar in international economics and her
teaching has emphasized what U.S. managers will need to know in
order to compete in the new global economy.
With these skills and perspectives, Mr. Chairman, I believe Dr.
Yellen will serve the Federal Reserve and our Nation with great
distinction. I want to congratulate her on her nomination and once
again thank the Chairman for giving me this opportunity to introduce this truly impressive woman.
The CHAIRMAN. Thank you very much, Senator Boxer. Those are
important comments and observations and they are very helpful to
us.
The Committee this morning is going to hear from both Presidential nominees, and I want to welcome them: Janet Yellen, who
has been nominated, of course, for the 14-year term as a Member
of the Board of Governors of the Federal Reserve System and who
we will hear from a little later; Julie Belaga, who has been nominated to complete a very short term as a Member of the Board of

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4

Directors of the Export-Import Bank and then to a subsequent full
4-year term.
I will call on colleagues here for any opening comments and then
we will go to Ms. Yellen's nomination. Let me make a few comments about that at this point.
Federal Reserve Board Members have the principal responsibility
within the Government for economic stability. Their goal is to
maintain a healthy rate of growth in jobs while permitting only a
low rate of growth in prices. It is obviously a difficult job and it
is a vitally important job. Mistakes, when they occur in policy formulation and adjustments, can be extremely costly.
·
In fact, the recession that we have just essentially recovered
from cost us, over its duration, more than $700 billion in lost production over a 4-year period of time. We do not tend to focus too
much on what the Fed's role was during that period of time, but
if one were to go back and read the record of hearings of this Committee, there were 23 policy adjustments, none of which seemed to
be very effective in dealing with the problem, although eventually
we see, now, a recovery, but at great cost over that period of time.
We certainly cannot expect the Fed to be able to, b_y itself, help
us avoid recessions entirely, but I think it is absolutely fair to say
that Fed decisions can have a powerful effect on how costly recessions are and how frequently they occur. These are not cosmic
events and the Fed has an enormous role to play in terms of both
anticipating events and helping to ameliorate harmful effects in the
economy if they do a good job. Sometimes they do, often they do
not.
The Federal Reserve also has other significant tasks. It is the
principal Federal regulator for a large share of our State-chartered
banks. It supervises and partly operates our financial payments
system, and it has an absolutely key role in helping to avoid any
systemic financial market failures.
The Fed also has a number of noteworthy issues to resolve, together with the other financial regulators. This includes finding a
way to significantly consolidate our bank regulatory agencies and
ensure that public risks posed by the private use of derivatives are
limited and contained and certainly under some reasonable degree
of supervision and control.
The Fed must also do a better job of enforcing and applying our
community reinvestment and fair lending laws. There has been
progress in that area, but it has been very slow in coming.
This nominee's qualifications for the job are excellent. She has
been a highly regarded economics professor at the University of
California in Berkeley now for 14 years. Her work has focused on
improving our understanding of unemployment and business cycles. She has also examined German economic reunification, trade
responses to exchange rate changes, income distribution, and a variety of other important economic issues. She has also taught at
Harvard and the London School of Economics.
We very much look forward to hearing her views on some of the
pressing issues of the day.
Let me now call on Senator Faircloth for any comments that he
might have.

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OPENING STATEMENT OF SENATOR I.AUCH FAIRCLOTH

Senator FAmCLOTH. Thank you, Mr. Chairman.
I want to welcome Dr. Yellen. Thank you for being with us. I had
a chance a couple of weeks ago to visit with you in my office.
This is an extremely crucial time in the Nation's monetary policy.
Our dollar has been falling not just against the yen, but against
a whole basket of currencies most of them in fact.
The truth of it is the Federal Government has taken on obligations which it cannot possibly hope to meet. The long-term outlook
for the Federal deficit and, consequently, the debt, is bleak and it
is a condition that the world financial markets are now recognizing.
The pressure will be on the Federal Reserve for easy money to
try to cure problems caused by runaway spending, out-of-control
spending, and of course out-of-control debt. Easy money will only
make matters worse for working men and women.
I hope you will say loud, clear, and often that your first, second,
and third priorities are no inflation, no inflationl and no inflation.
It is time for the Congress to cut spending and oring about a balanced budget, and certainly it is going to hurt, but we can stop penalizing the people who do work, save and invest.
Ending barriers to economic growth is the job of Congress, but
your job is going to be protecting the value of the working people's
dollar. That is the job of the Federal Reserve.
The Federal Reserve cannot bail out the politicians in Congress
and in the White House, past and present, by trying to inflate
away the Federal debt. The country is going to have to face economic reality. If we do not, the world capital markets are going to
shove it down our throat and they are already beginning to do it.
I heard, I visited with, and I recognize and have admired your
academic credentials. But I would hope in another appointment,
that the Board of Governors would also have proper representation
from those who have worked in the private sector. It is one thing
to have written about the economy, to have lectured on it, and to
have studied it, but it is another thing to have gotten up every day
and faced it in a day's work.
I thank you.
The CHAIRMAN. Thank you, Senator Faircloth.
Senator Sarbanes.
OPENING STATEMENT OF SENATOR PAULS. SARBANES

Senator SARBANES. Thank you ve7 much, Mr. Chairman.
First, for the sake of the record want to j!lst comment on the
one observation that Senator Faircioth made. The dollar, in factf on
a trade-weighted average is where it was a year ago. It has fa len
by only 2 percent versus all its trading partners since last October.
Now, the relationship of the dollar to the yen is quite different
and to some extent the relationship of the dollar to the German
mark is different, but the yen/dollar situation has been commented ·
by some observers as being a Japanese problem, not an American
problem with respect to that relationship.
It is not accurate to say that the dollar has, in effect, had a comparable or anywhere near similar fall against other partners. In
fact, the dollar has risen significantly in recent months against

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both the Canadian dollar and the Mexican peso, who are, of course,
two of our three largest trading partners.
I just wanted to put that into some context.
Senator FAIRCLOTH. May I ask, Senator Sarbanes, what is the
dollar doing against the French franc, the Swiss franc?
NAFTA would make the difference. We certainly passed NAFTA,
so consequently the Canadian dollar and the peso become tied to
us.
In what major currencies has the dollar not collapsed, skipping
Mexico and Canada?
Senator SARBANES. The only currency where there is anythingI would not use the word "collapsed" in any event even to descnbe
the dollar/yen relationship, but that is the only one where you can
raise that kind of an alarm flag. As I indicated, there are a lot of
commentators who see that as essentially a problem of Japanese
economic policy rather than American economic policy.
Senator FAmCLOTH. What kind of commentator? What is a commentator? Who? There are a lot of commentators.
Senator SARBANES. Yes, analysts who have looked at that and
have commented about it in the public press.
You can make the point. I just want the point to be accurate and
I want it to be in context. That is a\\. It is not accurate to, in effect,
assert that there has been a collapse of the dollar against all currencies. It is just not the case.
Senator FAmCLOTH. With the exception of the peso and the Canadian dollar-Senator SARBANES. Well, of course, those are important exceptions because they are two of our three largest trading partners.
Senator FAIRCLOTH. All right. It has held up against the peso
and the Canadian dollar. All right.
Senator SARBANES. kainst the Asian currencies, the dollar has
been essentially stable, feaving out the yen.
Senator FAmCLOTH. What is the predominant currency in Asia?
Senator SARBANES. Pardon?
Senator FAIRCLOTH. What is the predominant, overpowering currency in Asia? What currency dominates Asia?
Senator SARBANES. The U.S. dollar.
Senator FAIRCLOTH. How about the yen?
Senator SARBANES. No. The dollar is the standard worldwide
and, in fact, so much so that a lot of purchases made by other countries of significant resources are made in dollar terms, interestingly
enough.
Senator FAIRCLOTH. The do11ar has been collapsing against most
m~jor currencies in the last 2 weeks.
Senator SARBANES. That is just not accurate. That is the point
I am trying to make. It is exactly the point I am trying to make.
Mr. Chairman, having dealt with that matter, I would like now
to tum-Senator FAIRCLOTH. You have not dealt with it.
Senator SARBANES. -to Janet Yellen who is before the Committee this morning for us to review her nomination to be a Member
of the Board of Governors of the Federal Reserve System.
The review of her background makes it clear that she brings very
high qualifications to this nomination to serve on the Board of Gov-

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ernors of the Federal Reserve Board. A summa cum laude graduate
of Brown University, she holds a Ph.D. in economics from Yale
University. She has been an assistant professor of economics at
Harvard, a lecturer at the London School of Economics, and is currently the Professor of International Business and Trade at the
School of Business at the University of California at Berkeley.
In addition to her various academic positions, she has held a
number of significant public responsibilities which actually are relevant to this nomination. She served, actually, as an economist in
the Division of International Finance of the Federal Reserve-so,
she has been on the inside at an earlier point in her career-a
Member of the National Science Foundation Advisory Panel in Economics, and is a Member of the Panel of Economic Advisers of the
Congressional Budget Office.
By all accounts, Ms. Yellen is a professional economist of the
highest order. She has published widely in the fields of macroeconomics and international economics. As she says in her opening
statement, much of her work has focused on understanding the
causes of unemployment and how they might be dealt with. She
will bring to the Federal Reserve important analytical talents combined, I think, with a sense of the impact of economic policy decisions on the lives of everyday people.
As has been commented here, the Federal Reserve plays a very
important role in shaping the economic framework of the Nation,
making economic policy. It requires people of the highest caliber.
I have expressed in the past some concern that there has been a
tendency to focus on the caliber of the highest order when we have
discussed the Chairman of the Federal Reserve, but seemingly to
drop the standard when we talk about the Members of the Federal
Reserve. I am happy to say that I think President Clinton, both in
nominating Alan Blinder and now Janet Yellen, has shown a sensitivity to the need to have high standards on the part of all Members of the Board of Governors. They, after all, all have a vote. The
Chairman is their spokesman and their leader in a sense, but they
all have a vote. When they gather around the table in that sense,
they are equals. I think it is very important, therefore, that anyone
going on the Board of the Federal Reserve bring the highest standards and qualifications to the nomination.
I welcome this nomination here this morning. I look forward to
the dialog which will ensue. Thank you very much.
The CHAIRMAN. Thank you.
Senator Sasser is also Chairman of the Senate Budget Committee.
OPENING STATEMENT OF SENATOR JIM SASSER

Senator SASSER. Thank you very much, Mr. Chairman.
I want to welcome Dr. Yellen here this morning and also our
other nominee, Julie Belaga. I think both of these nominees have
exceJlent credentials and their well-deserved reputations precede
them.
Dr. Yellen is one of the Nation's brightest economic minds. I believe her work on macroeconomics and labor markets and her insights on international economics will serve the Federal Reserve
and the Nation well.

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It is also my hope that Dr. Yellen will bring some balance to a
Federal Reserve Board that, in my judgment, has ignored the
human implications by some of its actions.
I am most interested in Dr. Yellen's views on inflation and monetary policy. Asyou are well aware, Dr. Yellen, I have been very
critical of the Federal Reserve's repeated interest rate hikes over
the past 6 months. I think the Fed's fear of inflation is vastly overblown, and I see no reason why working men and women should
be punished because we might be on the verge of some economic
growth. The penance that the Fed has administered in the form of
hi~her interest rates only serves to dampen a healthy economy. I
thmk those who are seeking desperately to elevate their standard
of living after a period of 4 years of stagnation ought to be allowed
a little oxygen to breathe in this new economic environment.
We here in the Congress, in spite of some of the remarks you
might have heard to the contrary, have been doing our share. We
passed a budget bill last year that was calculated to reduce the deficit over 5 years by $500 billion. Thanks to a number of other recalculations and a better economy, and the fact that we used accurate
figures, these savings over the next 5 years have now accelerated
from $500 billion to around $650 billion in savings over 5 years.
Included in the deficit reduction was over $255 billion worth of
spending cuts, a $90 billion cut in entitlement programs, and a
hard freeze in discretionary spending.
That is something that the Congress and the Administration did.
That was fiscal policy. That was targeted to reducing the deficit,
to reducing the long-term debt of the country so that we could have
a more liberal monetary policy and move in the direction, once
again, of economic growth.
I am perplexed that when we have a fiscal drag on the economy
as a result of a tighter fiscal policy being pursued by the Federal
Government, that the Fed feels that it is incumbent upon them to
also impose a tighter monetary policy.
I think we have to move away from this hysteria over inflation.
I might remind our listeners that we had no inflation in the 1930's,
but we had a 25 percent unemployment rate at the height of the
Great Depression. We do not want to move in the direction of deflation as opposed to providin~ some modicum of economic growth in
this economy. I, for one, thmk economic growth figures of 2.5 percent or 3 percent are certainly not cause for concern over inflation,
and I think they are really inadequate to grow the kind of economy
that we need.
Mr. Chairman, I also think that Julie Belaga is an inspired
choice to go on the Board of Directors of the Export-Import Bank.
My good friend, the Junior Senator from Connecticut, has outlined
in detail Ms. Belaga's impressive range of public and private sector
experience, and there is littJe I can add to that. In my opinion, she
is the right candidate with the right qualifications to carry out the
Bank's new mission to promote the export of environmentally beneficial U.S. goods and services.
Once again, I want to welcome both of our nominees to today's
hearing. I look forward to receiving their testimony.
Senator SARBANES. Mr. Chairman?
The CHAmMAN. Yes, Senator Sarbanes.

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Senator SARBANES. Mr. Chairman, I would like to put in the
record in full-and I just want to quote very briefly from themthree articles with respect to this exchange that I had with Senator
Faircloth. One is an article by Paul Krugman that appeared in the
New York Times at the end of June, and I will just quote briefly
from it:
Why isn't the dollar's slide to date cause for concern? For one thing, the dollar
has not fallen all that far. Over the past year it has declined only about 10 percent
against the yen and less than 7 percent against the mark.
For another, the dollar has not been weak on all fronts. While it has slumped
!lgainst Japan and Germany1 other important trading partners like Canada and
Mexico have actually devaluea against tlie dollar.
All told, in the last year the dollar has fallen no more than 3 percent on average
against the currencies of America's trading partners.
Compare these currency movements with those between 1985 and 1987. Then, the
dollar fell from 258 yen to 129 yen and from 3.3 marks to 1.6 marks, and its average
exchange rate fell more than 30 percent. The great dollar slump of those years was
a good 10 times as big as this one. Yet, even that spectacular slide was not enough
to derail the economic recovery then in progress.

Now, the Washington Post.tin an editorial on July 3, 1994, headed "It's the Yen That's Out ot Control," and I quote them:
Americans have been wondering why their own currency seems to be falling at
a time when the economy here is performing well. Now it is beginning to be clear
that the dollar isn't falling. It is down a little against some currencies, up a little
against others, and trading in normal ranges against all but one, Japan's. It's the
yen that's out of control.

Finally, from the Wall Street Journal of July 22, 1994, this morning, quoting Under Secretary Summers:
'The dollar has, in fact, been stable when y_ou look at its relationship with the currencies of all major trading partners. The U.S. dollar has been particularly strong
against the Canadian currency.'
Mr. Summers, yesterday, pointed out that while currency fluctuations can be an
irritation in the global economy, they aren't as extreme as they used to be. 'Charts
of dollar moves in the mid-1980's looked like the Himalayas,' he said, 'while movements in recent years resemble the rolling hills of Yorkshire.'

Of course, the period he is referring to of the mid-1980's is the
period that Krugman was referring to in his article.
Thank you very much. I ask that the full articles be put in the
record.
The CHAmMAN. Without objection, it is so ordered.
Senator Faircloth.
Senator FAmCLOTH. Senator Sarbanes.
Senator SARBANES. Yes.
Senator FAmCLOTH. You quoted from the Wall Street Journal. I
assume you have it there in front of you.
Senator SARBANES. No. I have the article in front of me. I do not
have the whole paper in front of me.
Senator FAmCLOTH. All right. If you look at section C, money invested this morning, you would be interested in knowing that the
J .P. Morgan index value of the U.S. dollar today against 19 currencies is down, that it has clearly fallen all year long.
Senator SARBANES. I said there was a 3 percent fall. That is
what Krugman said. "All told, in the last year the dollar has fallen
no more than 3 percent on average against the currencies of America's trading partners." So, there has been a 3 percent drop.
Now1 as I pointed out, in 1985 to 1987, the exchange rate fell
more tnan 30 percent, 10 times as much.

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Senator FAmCLOTH. Are you through? I would like to talk if I
mZ!Y,

Senator SARBANES. Certainly.
Senator FAmCLOTH. It has had a 3 percent gain, the dollar
against the Canadian dollar. It has had a 32 percent gain against
the Chinese yen, but now against France, it is down 9.9 percent;
Germany, 9.7 percent; the Italian lire, 10.2 percent; the Japanese
y~n, 13.3 percent; South Korea, .8 percent; Taiwan, .5 percent; the
United Kingdom, 5.4 percent. So, it is losing. To argue otherwise
is ludicrous.
It has held against the Canadian dollar and the Mexican peso because of NAFTA Mark out those two, and it has fallen. I am
through.
Senator SARBANES. Let me be very clear, Mr. Chairman. I stated
and quoted that the dollar had slipped a bit on average, 3 percent
over the year. I am perfectly happy to put that right up front.
What I was addressing was the Senator's assertion at the outset
which he continues to assert, that the dollar has just collapsed
against all currencies, and that is just not accurate. There is a
problem with respect to the yen, but as the Washington Post points
out in this editorial, and as other commentator's nave also indicated, that really may well be more a problem with the Japanese
economy than it is with our economy. I just want to put the thing
in context.
Yes, I would like to put in a good article by Robert Samuelson,
''The Yen: Japan's Reality Check." He ends that article by saying,
''The problem is not the dollar, it's the yen," after going through a
careful analysis about the Japanese economy and Japanese economic policy.
The CHAIRMAN. We have had a good discussion. There are obviously at least two points of view on that issue.
[Laughter.]
It lays a good foundation of point of view for your comments
which will come shortly.
Senator SASSER. Thank you, Mr. Chairman. I am looking forward
to hearing from Dr. Yellen at some point today.
[Laughter.]
The CHAIRMAN. It will not be long.
Senator Boxer, did you have anything else to say? You gave us
a very fine introduction of this witness.
Senator BOXER. I am looking forward to the statements.
The CHAIRMAN. Before you begin your statement, let me do what
is routine in situations such as this and that is to ask you to take
the oath. Would you stand and raise your right hand please?
Do you swear or affirm that the testimony you are about to give
is the truth, the whole truth, and nothing but the truth, so help
you God?
Dr. YELLEN. I do.
The CHAIRMAN. Do you agree to appear and testify before any
duly constituted Committee of the Senate?
.
Dr. YELLEN. I do.
The CHAIRMAN. Very good. Please introduce anybody that may be
with you or any acknowledgements of that kind and then we would
like your comments. After that we will go right to the questions.

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STATEMENT OF JANET LOUISE YELLEN, PH.D.
OF CALIFORNIA, TO BE A MEMBER OF THE BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Dr. YELLEN. I would like to introduce two members of my family,
my brother, John Yellen, and my sister-in-law, Alison Brooks.
The CHAIRMAN. Delighted to have you.
Dr. YELLEN. Chairman Riegle Members of the Committee, I am
pleased to appear before you ~ay as President Clinton's nominee
to serve on the Board of Governors of the Federal Reserve System.
I am deeply honored that the President has nominated me to serve
as a Member of the Board.
The decisions of the Federal Reserve affect the economic wellbeing of all Americans through their impact on output growth,_j_ob
creation, inflation, interest rates, and the value of the dollar. The
Fed also has important regulatory and supervisory responsibilities
for the safety and soundness of the banking system, for the integrity of the payments mechanism, the enforcement of the fair lending laws, inclu~ing the Community Reinvestment Act, and for
other consumer issues.
If I am confirmed, I pledge to work with other Members of the
Board to craft a monetary policy geared toward maximum employment, stable prices, and moderate long-term interest rates, the
goals established in the Federal Reserve Act, and to faithfully execute the regulatory responsibilities entrusted by Congress to the
Federal Reserve Board. These are challenging and important tasks
and I will devote my full energies to carrying out these duties to
the best of my ability.
Before commenting on some of the issues confronting the Federal
Reserve, let me briefly describe my background and qualifications
for the position as Governor. As Senators Boxer and Sarbanes
noted, I was born and raised in Brooklyn, New York, but I have
lived in California since 1980 where I serve as Bernard T. Rocca,
Jr. Professor of International Business and Trade at the Haas
School of Business at the University of California at Berkeley, and
I teach macroeconomics and international economics to MBA's and
to executives. My interest in economics is longstanding. I majored
in economics at Brown University, graduating in 1967, and received my Ph.D. in economics from Yale in 1971. As Senators Boxer
and Sarbanes also noted, I have held a variety of academic positions and have also worked at the Board of Governors of the Federal Reserve.
I have published original research on a wide variety of topics relating to international economics and to macroeconomics. My research has explored the causes of cyclical fluctuations and the potential for monetary policy to mitigate them, the wage setting policies of firms, the measurement of labor market slack, and the impact of macroeconomic performance on job switching and job satisfaction. I have also studied the implications of globalization for
international investment and employment, the linkages between
exchange rate changes and the U.S. current account deficit, and
the consequences of German monetary union for East German reconstruction.
I hope that this broad background and experience have equipped
me with the analytical tools and historical perspective needed to

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analyze emerging trends in the domestic and world economies and
to help in the formulation of appropriate monetary policies.
Furthermore, as a faculty member in a professional school of
management, I have been immersed in the problems of business
and have gained an appreciation of the economic conditions which
foster a willingness on the part of firms to hire and train workers,
to invest in plant and equipment, and to undertake new research
and development, the investments which are necessary for long-run
economic growth and enhanced living standards of American families.
Price stability should be a central goal of monetary policy. There
are many reasons for according high priority to this objective. With
high and unstable inflation, profits derive disproportionately from
outwitting the financial system rather than from producing the
products that consumers need. Inflation creates uncertainty and
distorts price signals, complicating business planning. Under the
current tax system, higher inflation raises the cost of capital, diminishing the incentives to save and invest. Inflation erodes the
wealth of small savers whose assets are fixed in dollar terms. And,
as interest rates rise to compensate for inflation, debt service burdens increase as a fraction of income, making purchases of homes
and cars unaffordable for many families. Workers worry about how
to cope with rising prices and meet their current bills, and with uncertainty as to whether wages and salaries will keep up with
needs, times of inflation often become times of labor strife.
Many factors, including fiscal policy, oil prices, exchange rates,
wars, and productivity shifts, affect the behavior of prices in the
short run, but in the long run, inflation on a sustained basis cannot
occur unless monetary policy accommodates it. The Federal Reserve controls the Nation's money supply, and thus the FOMC effectively determines the level of inflation over the longer run. The
Fed's responsibility is to choose policies that are designed to maintain a noninflationary environment.
The second objective of the Federal Reserve should be to keep the
economy growing as close as possible to the natural rate of unemployment, the maximum feasible employment level consistent with
stable inflation. The natural rate of unemployment is the lowest
rate of unemployment that the Fed can target without risking accelerating inflation. My goal, as a Governor of the Federal Reserve
Board, would be to confine unemployment to this level
My personal agenda as an economist has been to understand the
causes of unemployment and discover ways to alleviate its pain. In
times of high unemployment, workers who lose their jobs face the
terror of being unable to support themselves and their families.
The toll of high unemployment, like that of a regressive tax, falls
most heavily on groups in the work force that are least able to bear
the burden.
Young workers deprived of gainful employment may have careers
which are permanently stunted because they cannot develop the
skills which are critical to their long-term job prospects.
In addition, in times of high unemployment, even those who have
work often become stuck in jobs and places where they are unhappy with limited possibilities to move.

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A slack economy lowers corporate profits, diminishing the ability
of firms to invest and fund R&D, and it creates unused capacity,
diminishing their incentives to add to capacity.
Through this channel, high unemployment harms long-term living standards. A rough rule of thumb is that each percentage point
of unemployment, in excess of the natural rate, costs the economy
about 2 percent of GDP, roughly $130 billion in today's economy.
Thus, the costs of unemployment are great and, as a Governor of
the Federal Reserve, I will do my utmost to maintain the maximum feasible level of employment consistent with the achievement
of price stability.
In the short run, the Federal Reserve faces a tradeoff between
the goals of low inflation and high employment. But a monetary
policy which pushes the economy beyond its potential for the sake
of current job gains is shortsighted and ultimately unfair to American workers. Such gains are transitory, a loan which must be repaid in the form of job losses at a later date. The pursuit of job
gains in the short run, in excess of what the economy can sustain,
engenders inflation, and later job losses constitute the cost of bringing inflation down. The recession of 1982-1983 illustrates the enormous price that workers and businesses paid to bring inflation
under control after it built up in the 1970's. Having incurred such
a high price to lower inflation then, it would be foolhardy to squander the fruits of this effort.
If I am confirmed, I will join the Federal Reserve at a time when
the macroeconomic fundamentals are sound. Inflation is the lowest
it has been in almost 20 years, except for a brief period in 1986
when oil prices were tumbling, and with strong GDP growth, the
unemployment rate has declined substantially. I believe that the
Federal Reserve's major goal at this juncture should be to create
monetary conditions conducive to stable real growth at a pace
matching the economy's growth in potential output.
This is a challenging task. The impact of Federal Reserve policies
on the economy occurs with a substantial lag, and random shocks
and uncertainties concerning the strength of kel economic linkages
make forecasting difficult. I agree with the Fed s decision to reduce
monetary stimulus, before the emergence of obvious inflationary
pressure, in order to avoid overshooting the natural rate. On the
other hand, the appropriate amount of tightening involves some
guesswork and it is difficult to know whether the actions that have
been taken thus far will prove sufficient to prevent overheating, insufficient to the task at hand, or possibly excessive.
The role of a Fed Governor now, as always, is to monitor every
available economic indicator in order to continually update forecasts of economic performance and to make needed policy readjustments, constantly balancing the risk, on the one hand, of choosing
a monetary policy which is too expansionary, threatening overheating of the economy, and on the other, of a policy which is too tight,
threatening jobs and income growth. This is a difficult task, and no
simple formula or single performance indicator, including the price
of currency, gold, bonds, stocks, fluctuations in inventories, durable
goods orders, monetary aggregates, or whatever, should receive
undue attention. Instead, the job of a Fed Governor is to make reasoned judgments about likely future trends in light of all available

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economic data. In this task, I hope to make a constructive contribution to the work of the Board.
I am a strong believer in the independence of the Federal Reserve. A policy regimen geared toward long-term economic health
must avoid the temptation to conduct policies which overheat the
economy for short-term gains. Occasionally, a dose of bitter medicine must be administered for health to be restored. Congress wisely devised a system which enables the Federal Reserve to take the
long view. I believe that this system best serves the interests of the
American people and ultimately enhances economic performance. I
also appreciate the necessity for accountabilitr on the part of the
Fed to Congress and ultimately to the Amencan people. If I am
confirmed, I pledge my full cooperation in this process.
In conclusion, I would like to thank you, thank the Committee
for the speed with which this hearing has been scheduled-I know
how busy your agenda is-and note that in my opening remarks I
focused on just one of the responsibilities of the Federal Reserve,
the conduct of monetary policy. I am well aware of the many other
duties of the Federal Reserve, with respect to supervision and regulation of the banking system, and am learning more about challenging policy issues confronting Congress and the Federal Reserve
in such areas as product line deregulation, enforcement of fair
lending laws, reduction of regulatory burden, and possible measures to reduce any risks posed by derivative instruments to the
safety and soundness of the financial system.
I will be happy to answer any questions that you may have.
The CHAIRMAN. Very good. Let me just, at this point, interrupt
the proceeding. Senator Dodd is here. I know he has an introductory comment that he wants to make with respect to Ms. Belaga.
I know Congressman Shays is here as well and wants to also make
an introductory comment. Senator D'Amato wants to put his opening statement in the record at this point, and I am going to recognize him for that purpose. Then, I am going to call on Senator
Dodd and invite Mr. Shays to come up, as well, and we will deal
with those introductions.
Senator Donn. I didn't follow you, but I will be glad to do that.
[Laughter.]
The CHAmMAN. All right, very good. Stay with me.
Senator Donn. I will just stay tuned here.
The CHAmMAN. Senator D'Amato.
OPENING COMMENTS OF SENATOR ALFONSE M. D'AMATO

Senator D'AMATO. Mr. Chairman, thank you so ver, much.
Mr. Chairman, in the interest of time, I am just gomg to ask that
my statement be inserted in the record as if read in its entirety
and wish both nominees good luck in their important jobs. I feel
confident that you bring the kind of judgment and experience that
will be important in these important positions, and I look forward
to supporting you and working with you in the years to come.
The CHAmMAN. Very good. Without objection, the statement will
be included as part of the record.
Senator Dodd, do you want to go ahead, then, with your introduction. We will just suspend for the moment, Ms. Yellen-I know

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you will understand-so we can do this and accommodate Congressman Shays as well.
Senator DODD. If it is appropriate, Mr. Chairman, I am ~oing
down to join Congressman Shays and appear before the Committee.
The CHAmMAN. Please do.
OPENING STATEMENT OF SENATOR CHRISTOPHER J. DODD

Senator DODD. Mr. Chairman, first, I appreciate your courtesy in
allowing us to break up the schedule here just a bit, but this is a
moment of great pride in the Nutmeg State, if I may say so, to be
joined here by my colleague and friend, Chris Shays, the Congressman from the Fourth Congressional District in Connecticut and our
nominee's Congressperson.
I have had the pleasure, honor, and distinction of knowing Julie
Belaga for many, many years. I am going to ask unanimous consent that a prepared statement be included in the record regarding
her nomination.
As you know, Mr. Chairman, Ms. Belaga is before the Committee
today as the President's nominee to be a Member of the Board of
Directors of the Export-Import Bank and I want to commend the
President for this selection. I am confident that the Committee will
look favorably upon this nomination and move it as expeditiously
as possible.
We all know-and I do not need to belabor it in front of this
Committee-the crucial importance of exports to our economy in
both the near- and the long-term, and how tremendouslr important
they are to all of our States. I know my own State of Connecticut
has benefited tremendously to the tune of almost $80 million as a
result of Export-Import Bank activities.
Julie Belaga, Mr. Chairman, has had a long and very distinguished career in public service in our State and in the country.
She was a State Representative in Connecticut for 10 years. She
served as a lecturer on public policy at Harvard University, and
worked with our media in the State as a commentator. She was the
Regional Director of the Environmental Protection Agency, and a
candidate for Governor. I am pleased to say, an unsuccessful candidate for Governor-[Laughter.]
-as a Republican candidate for Governor. I am teasing when I
say that, but Bill O'Neill won that election. You would probably expect me to say nothing less.
In our State, Mr. Chairman, by and large we have our differences politically and substantively and we debate them out, but
we are a small State. We are a little more than 3 million people.
We all know each other pretty well. It is an area 100 miles by 60
miles. It is not even the size of Los Angeles County by population
or geography. So, we get to know each other very, very well, and
we may have our differences from time to time.
I will tell you, here today, that Julie Belaga is one fine person
and a tremendous public citizen who always keeps the best interests of her constituencies paramount. She has been chosen one of
the top legislators in the State, over the years, by both Democrats
and Republicans, including Outstanding Freshman Legislator of
1977-an award voted on by other legislators in Connecticut.

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I am just pleased that President Clinton, in looking for diversity,
has chosen someone like Julie Belaga to be one of the Directors of
the Export-Import Bank. I think it strengthens all of us.
During her tenure as the Regional Director of EPA-and again,
we all know what that can be like in trying to work with people
and the politics of it-she always made sure the Democrats were
included at any kind of information session or ceremony. I know I
got as early a word as anyone else, regardless of party or political
persuasion. Chris did not like to hear that or see that, but that is
just the kind of individual she is.
I have been a promoter of this idea that she come to Washington,
particularly to work in the area of environmental areas of the Export-Import Bank. We are trying to promote those technologies. We
all know the difficulties in the new emerging republics, and the tremendous environmental problems in promoting the export of U.S.
technology in these areas. Given her background, I think she will
be extremely helpful.
You have the resume in front of you. You see her credentials. I
am here to join my colleague in the House in telling you that we
think this is a terrific nomination. We are deeply pleased that
President Clinton has put it forward. It says a lot about him that
he has nominated her and it says an awful lot about our nominee
that she has accepted and is excited about this opportunity. I am
sure when you get to hear from her, you will sense that enthusiasm that all of us have known for so many years in the State of
Connecticut.
The CHAIRMAN. I might just say, Ms. Belaga, that I spent my
first 6 years in the House as a Republican. Then I changed parties.
So, I can identify with what it sounds like your brand of Republicanism is.
Mr. SHAYS. Don't get carried away, Senator.
[Laughter.)
The CHAIRMAN. Congressman Shays, we are pleased to have you
and we would like your comments now.
STATEMENT OF CHRISTOPHER SHAYS
A U.S. REPRESENTATIVE FROM THE STATE OF CONNECTICUT

Mr. SHAYS. Thank you. In one minute, first, thank you for letting
us interrupt your hearing and thank you, Senator, for the opportunity to testify.
I just want to congratulate President Clinton for this appointment and to thank, in particular, Senator Dodd, for his interest in
this candidate because he has found the very best and to just tell
you about the quality of this individual since you have her background and experience. She is highly intelligent. She has impeccable integrity. She is creative. She is dedicated. She is very hardworking. I just have awesome respect for this individual. She will
play it by the rules. She is not partisan. She just wants this country to move forward. I just think she is the best example of an
American citizen you can have and I am just pleased that this appointment has been made.
The CHAIRMAN. Very good. Thank you for corning over and making your comments. I am delighted to have both those statements.
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Ms. Yellen, do you want to come back up? You had finished your
statement and I am going to have a number of questions for the
record. I am mindful of the time today, because we have a banking
conference Committee meeting that will take place early in the
afternoon, and a number of important matters to be settled there.
Let me ask you a question, initially, on the ~eneral area of regulatory consolidation in terms of bank regulation. Last November,
Secretary of the Treasury Bentsen proposed a bank regulatory restructuring plan that would streamline the regulatory function of
the four Federal bank regulators.
Then, in March, this Committee held hearings on the Treasury's
proposal and we heard from the heads of the Federal Reserve,
Comptroller of the Currency, the Office of Thrift Supervision, and
the FDIC, and they all described the need for a more consolidated
and efficient Federal bank regulatory structure. I strongly support
that concept and have advanced that legislatively.
I would like your opinion. Do you think that consolidation of the
Federal regulatory apparatus is desirable and necessary?
Dr. YELLEN. Yes, I do. I think that there are definitely efficiencies to be gained in the process of bank supervision and regulation. The system, as it stands, strikes me as Byzantine. It is unduly complex, and I think that duplicative Federal bank examinations and overlapping regulation across the agencies ought to be
eliminated because it is costly both to the Government and to
banks. I would certainly like to see a proposal work its way
through Congress to consolidate the system. I think it would result
in a fairer system with lower regulatory burden.
The CHAmMAN. Then we can count on you, if confirmed as a
Member of the Federal Reserve Board, to work with us here in the
Congress and with the Administration on a restructuring plan that
would increase efficiency and reduce the cost of the current bank
regulatory system and some of the inherent conflict there.
Dr. YELLEN. Yes, Senator Riegle, you can certainly count on my
cooperation to work toward that goal. I strongly endorse it.
The CHAmMAN. Thank you.
Yesterday, when Mr. Summers was here-reference has been
made to the news stories, today, about his appearance when he was
talking about the semiannual exchange rate report. Japan is going
to have a global trade surplus this year of about $130 billion. Nearly half of that is with the United States. That is $60 billion, a $5
billion a month drain, if you will, on our economy. I am just wondering what, in your view, are the consequences of that if that continues year after year after year as it has now for well over a decade?
Dr. YELLEN. From the United States' side, we run an overall current account deficit, of which part is with Japan, but part is with
the rest of the world. From my standpoint, that is a problem. It is
a reflection of the fact that the United States is a country that is
not saving enough. A country runs a current account deficit when
it spends in excess of its income. By spending, I mean purchases
by households, firms, and the Government. When total spending is
in excess of what a country produces, it ends up with a current account deficit.

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A current account deficit is a problem if it reflects the fact that
we are not providing well enough for the future. I think a significant part of that deficit in the past has been reflective of Federal
Government budget deficits.
A current account deficit is not invariably a problem, however.
If a country, like a firm, were spending in excess of its income in
order to invest, then in the future it would generate a reward from
that investment that would help it pay its bills later on; but to the
extent that the United States is not investing and that the current
account deficit does not reflect extraordinarily high investment, it
is a problem and generally reflective of our low savings rate. Of
course, from Japan's side, the opposite is true. Japan is a country
that saves a great deal.
The CHAmMAN. We will pursue that another time.
I want to ask you about derivatives. There are many people-and
I am among them-who have a concern about the rapidly growing
involvement of banks in derivative activities. Yesterday, the Comptroller of the Currenc~ issued an advisory letter to banks concerning "structured notes,' debt instruments with embedded options or
forwards. Now, some people tend to dismiss the risks of derivative
activities and say that banks have the situation in hand and we
ought not to worry about it.
Are you confident that the regulators have the capability to adequately measure and constrain banks from taking on excessive levels of risk through derivative activities?
Dr. YELLEN. I would not want to say that I am fully confident.
I believe that the regulators are working together effectively to address this issue. I believe it is an important issue because there is
some sma11 probability of events that can have systemic repercussions, and it is an area where regulators should not be complacent.
On the other hand, I do see that the regulators on this question
are trying to get ahead of the curve in a number of different ways.
I know that they have done a great deal to insure that banks have
in place solid risk management systems. I think one of the causes
of the growth of this market is the fact that banks and other
agents have become very much more sophisticated themselves in
their ability to deal with risk management.
Bank regulators, of course, have a very great responsibility to ensure that the safety and soundness of the banking system and the
insurance funds are protected. I think adequate capital requirements are key here, so that if there is gambling that is occurring,
those who are gambling are doing so with their own money and
risk losses that will not overwhelm the capital that they have. Improving the measurement of risk to take account of market risk,
and not just credit risk, is something that is also important and I
know the regulators are working on that.
So, I do not think we should be complacent in this area, but I
do see a lot that is positive going on.
The CHAIRMAN. Let me just give you a cautionary thought here.
There is a lot going on. I think that there is alertness now that was
not necessarily present sometime back. I want to make sure we are
on top of this problem. I am not confident that we are today. I have
not found a single regulator yet that is able to demonstrate to me

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a sufficient personal knowledge of how the whole derivatives system is working and they are frank to say that in private discussion.
I do not want an ounce of complacency on this issue. I want to
make sure you get into it, if confirmed, that you understand it, that
you can come back and tell me you understand it, and no ifs, and's,
or hut's. I do not want a problem out there that comes circling
around some day and then everybody says, well, we thought we understood that, we thought we were on top of that. That is not a tolerable situation. I have enough concern about it that I want to emphasize to you, as directly as I can, that I am attaching a personal
responsibility to you to take this mental capability and expertise
that you have and get on top of this problem.
Dr. YELLEN. I am happy to promise you that I will involve myself
in this problem. I agree with you that it is something that there
should not be a feeling of complacency about. It is a complex issue
and there are risks. They are low probability events, but ones that
are very serious should they occur, and I think the bank regulators
have to be on top of this.
The CHAIRMAN. Let me make one other point about this, and
that is that I am concerned-and I have seen this happen in other
situations where we tend to look at a piece of a problem. You may
look at the derivatives issue through the eyes and the focus of the
banking system and not sufficiently understand the cross-relationships where activity may be out there related to the nonbanking
system. I do not want a chain reaction problem developing that
comes crashing through into the banking system and hits the deposit insurance system again.
The fact that there is a capital cushion out there is all well and
good. I do not want to see us bum through that, and I have seen
a lot of very sophisticated players take big hits recently. I am not
confident, as I sit here, that one class of players, whether it is the
GE's of the world or others, are necessarily any less sophisticated
than are some of the banking institutions that are also involved in
this activity.
I do not want to leave this to the- theorists and guesswork and
so forth. I want a competence applied to this so that, at the end
of the day, we have some rather certain knowledge that we understand the magnitude of all the cross-connections on a global basis
as well, because this is a global issue. I do not want to have us get
hit in the back of the head by this problem, and I think it has that
potential.
Dr. YELLEN. I agree with you that it has that potential and I
pledge to do my best on this subject.
The CHAmMAN. Very good.
Let me yield now to Senator Sasser.
Senator SASSER. Thank you, Mr. Chairman.
I am going to ask you some questions, Dr. Yellen, some of which
you might be able to answer rather briefly.
Dr. YELLEN. I will try.
Senator SASSER. Do you believe that monetary policies should
focus exclusively on fighting inflation at the expense of everything
else, or should the Federal Reserve also be concerned about recessions and unemployment?

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Dr. YELLEN. Senator Sasser, as I emphasized in my opening
statement, the Federal Reserve's job is to do what it is instructed
to do in the Federal Reserve Act, as amended, and that is to focus
on inflation, namely price stability, maximum employment, and
moderate, long-term interest rates. It does not say to focus on price
stability exclusively, and I care about all of those goals.
Senator SASSER. Dr. Greenspan, the Chairman of the Federal Reserve Board, has testified repeatedly before the Congress that antiinflation policies promote long-run productivity growth. Are you familiar with the academic literature on this question and, if you are,
will you give us your views on this matter?
Dr. YELLEN. I am familiar with some of the academic literature
on this question, and I would say that the jury remains out on
whether or not there exists a relationship between higher inflation
and slower productivity growth at moderate rates of inflation.
I am not talking here about the kinds of problems that occur in
hyper-inflationary situations where it is clear that money has lost
its value as a medium of exchange with serious consequences for
the functioning of the system. But, if we are talking about inflation
rates that have not reached the double digits, I would say there are
tantalizing correlations there, but correlation is not causation.
Countries rarely run high inflation rates purely as an experiment
that central banks have decided it would be interesting to engineer
so that they can see what the consequences would be. Almost always there is something more fundamental that is driving the inflationary process-whether it is Government budget deficits that
a central bank is under pressure to finance or other problems in
the economy. All of those factors-oil shocks, wars, other problems-can be driving that correlation. So, I would say the jury is
certainly out.
But it is an important question because if there is a link between
higher inflation and slower productivity growth, that is certainly
an important consequence of inflation that we ought to know about.
Senator SASSER. Strong productivity growth can keep inflation
down, of courseDr. YELLEN. Yes. The causation can also run in that direction.
Senator SASSER. -by allowing firms to increase their profits
without boosting prices.
Dr. YELLEN. Yes. The correlation could be a matter of reverse
causation from high productivity to low inflation.
Senator SASSER. Isn't that exactly what is going on in many sectors of our economy now?
Dr. YELLEN. I think that may, to some extent, be going on, that
good productivity growth is helping on the inflation front.
Senator SASSER. A while ago, you were talking about the 1970's
and the inflation that built during the 1970's and culminated in the
excessively high interest rates of the late 1970's and early 1980's
that finally plunged us into the deepest recession since the Great
Depression of the 1930's. In your judgment, what were the primary
factors that contributed to the inflation of the 1970's?
Dr. YELLEN. I think it began during the Vietnam War period
when Government spending increased and pushed the economy up
a~ainst capacity. It began to grow slowly. Then the economy was
hit by a series of adverse supply shocks, the oil price increase of

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1973, and as we were beginning to recover from that, there was the
second oil price hike.
I think the Federal Reserve was faced with a very difficult problem during that period of whether to accommodate those price increases that were coming from the supply side or not. The)' partially accommodated the price increases coming from supply shocks
and found out later that, as a consequence, inflationary expectations began to rise. So, even when the supply shocks were overt the
economy was left with what most regarded as an unacceptably nigh
rate of inflation-Senator SASSER. Due to inflationary expectation?
Dr. YELLEN. Yes, due to inflationary expectations.
Senator Dono. If' my colleague would yield. Just on that Vietnam
War issue, it was not so much that there was spending as it was
that we did not pay for the spending.
Dr. YELLEN. That is right, yes.
Senator SASSER. So, it would be accurate to say, in your judgment, Dr. Yellen-and I do not want to put words m your mouththe inflation of the 1970's was really caused by the Vietnam War,
spending that was not paid for, as Senator Dodd said and the two
rather severe oil shocks that occurred during the 19701s.
Dr. YELLEN. Yes, but the Federal Reserve chose, at least partially, to accommodate that. Had they taken an extraordinarily
tough stance against inflation, we would have had less of it, but
during that period I think the consequence would have been much
higher unemployment rates prior to the 1982-1983 recession.
Senator SASSER. There is no question you would have had a
tighter monetary policy which would have resulted in higher unemployment rates during that period of time and less economic
growth.
So, this culminated in Dr. Volcker's extremely high interest rates
of the early 1980's that plunged us into the deep recession of 1983.
Do you think we would have been better advised during the decade of the 1970's to pursue a tighter monetary policy? I think the
Japanese did that in response to their oil shocks, did they not?
Dr. YELLEN. I believe they did do so.
Senator SASSER. Yes.
Dr. YELLEN. I think it is a tough issue. I think we paid a very
great price in 1982-1983. I would not like to live through that
again. It was not a straightforward issue, though.
Senator SASSER. Yes. Some of us think we paid too high a price.
We think that Dr. Volcker, or Professor Volcker, let the rates go
higher than was really necessary, that he tightened the monetary
policy and put on the monetary brakes too abruptly. Before it was
over, I think he ended up perhaps even frightening himself with
the results of it.
All right. One final question, Dr. Yellen. It appears to me that
there is a widespread fear on the part of some in the financial
world, that is reflected, I think, to some extent, by the leadership
of the Fed now, of economic growth. The fear is that if we ~et some
economic growth going, we have got to shut it down qmckly because if we do not, we may get some inflation.
Now, my question to )'OU is, do you think rou can have substantial economic growth without excessive inflation?
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Dr. YELLEN. I think what the Fed needs to do is make sure that
growth in aggregate demand matches the growth in the economy's
ability to supply goods and services. The growth of potential output
depends on productivity growth and labor force '-1'0wth. Unfortunately, productivity growth has fallen in the Umted States since
1973 for reasons that economists have studied in great depth and
yet do not fully understand. If, on a perpetual basis, the Federal
Reserve allows aggregate demand to grow at a faster pace than
that, eventually they will encounter inflationary pressures, so that
is not a sustainable situation.
Senator SASSER. This is my final question, Mr. Chairman.
I thought that productivity growth in the industrial sector had
picked up appreciably during the 1980's.
Dr. YELLEN. I think it has picked up, and estimates of productivity growth in the nonfarm sector vary, but people see productivity
growth in the range of 1.5 percent.
Senator SASSER. But isn't there a difference between the industrial sector and the service sector? In other words, I was under the
impression that productivity growth in the industrial sector of our
economy had been doing very well during the latter part of the
1980's and in the 1990's, and productivity growth in the service
sector is very, very difficult to measure.
·
Dr. YELLEN. I agree. It is difficult to measure. It is very hard,
in assessing productivity growth, to distinguish between movements over business cycles and trend movements and a number of
researchers have tried to determine whether or not there appears
to be a permanent increase in productivity growth. Certainly, there
is anecdotal evidence that would suggest that corporations are
doing business in a different way, that they really have become extraordinarily oriented toward continually reengineering the way
they do business in order to get continual productivity improvements. That would lead us to have some hope that there will be
a permanent pickup in the pace of productivity growth. I would
hope to see it, but I think the jury remains out at this point.
Senator SASSER. Yes. I will just leave you with this one final observation. I think we have to remember the human equation here.
It is one thing to move in the direction of zero inflation. It is another thing to have high productivity growth. All of these are, I
think, laudable goals, but in the final analysis, what an economy
does is provide the wherewithal for human beings to exist and
grow in a quality environment. That is really what it is all about
in the final analysis.
Dr. YELLEN. I agree with you.
Senator SASSER. I sometimes have the sense that we get lost in
all of the statistics of zero inflation, productivity growth, et cetera,
et cetera, et cetera. If you are on a street corner without a job and
homeless, it is not much solace to say, well, we've got zero inflation,
high productivity growth, the budget is totally balanced. So what?
Dr. YELLEN. I hope to keep my eye on the people behind the
numbers.
Senator SASSER. Thank you.
The CHAIRMAN. I am going to have some questions for the record,
but I want to cover a couple of things here.

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I do not know if you saw the jobless claims data out this morning. Have you had a chance to see that?
Dr. YELLEN. I did hear that the jobless claims had risen.
The CHAIRMAN. Let me just read you the account from the New
York Times this morning:
The number of Americans filing new claims for State jobless benefits shot UJ> last
week, the Government said today. The Labor Department said new claims for State
unemployment benefits, ended July 13, climbed to 392,000 from a revised 365,000
the prior week, putting it to the highest level since late January. The number far
exceeded Wall Street economists' forecasts of 358,000 new claims in the week. The
average climbed to 363,500 in the week ended July 16 from a revised 353,500 the
prior week.

There is a question as to whether some of the temporary layoffs
in the auto industry are affecting these numbers, but we Just saw
the day before the fall-off in housing starts and sales of completed
homes also came down. I think there is a growing sense on the part
of many that the Fed tightening, both the signal that it gave, the
psychological signal of the change in direction and now the actual
effect of higher interest rates, is beginning to start to impact the
economy. Greenspan, when he was liere, said that he thinks there
is a 6-month, to 9-month, to even an 18-month time over which
those effects are fully felt, but I think it is clear we are already seeing some effects. We have had market effects, and other effects.
We try, as best we can, to see how much inflation may be appearing out there as an offset to this softening economic data. I do
not see too much. I suppose if one isolates on a given item, one
might SB}', well, wait a minute, what does this mean? But, if you
tak:e it all, I do not think there is any significant body of economic
analysis by so-called experts that indicates that there is a major inflation problem that is surfacing here. At least it certainly does not
appear to the naked e_ye. Would you agree with that, by the way?
Dr. YELLEN. I would agree with you that inflation appears to be
stable at this point, to be well contained. I think it is the Fed's job
to keep its eye both on what is happening to inflation and what is
happening to jobs and economic growth. The Administration has
said that the high growth rates that we had at the end of 1993 and
the beginning of 1994 could not be sustained, and I think we know
that the pace of growth and demand has to come down to something matching the economy's potential to grow.
I would like to see that happen, but I do not want to see the
economy slip into a recession. I want the Fed to be ready to act if
the slow-down that we see occurring now goes too far, and by the
same token, if we see signs of emerging inflation, if they appear on
the horizon, the Fed also has to be prepared to act. I would hope
they would be prepared to act in either direction, depending on the
risks.
The CHAIRMAN. I would agree with that. I think there is a very
careful balance to strike here. We do not want to go back into a
recession. We do not want to kill this recovery before it fully takes
hold.
I am of the view that while we have been repairing the balance
sheets in financial institutions, there are still a lot of family balance sheets that took a terrible pounding that have not been repaired. There are an awful lot of people that have lost jobs and either have not found jobs yet or have gone from full-time work to

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part-time work or, if they have gone from one job to another on a
full-time basis, they have left a job that was maybe paying $27,000
a year and ended up with a job that may now pay $18,000 a year.
So, there has been an enormous backward slide of a lot of people,
in effect, either out of the middle class or down from higher wage
levels to lower wage levels. I think that is buried in the numbers.
I think it is a real problem in the country. It is part of the, I
think, disaffection and frustration that people are feeling about
what is happening to America and even with our ability to respond
to it with policy that seems to work for them.
In anr. case, I am very sensitive, as you have just expressed a
sensitivity, to striking the right balance here between the lowest
level of unemployment that we can achieve and, at the same time,
not reigniting inflation. I do not want inflation reignited either. I
do not want to be misunderstood on that issue.
By the same token, high interest rates or higher interest rates
are, by themselves, inflationary. If you want to buy a house--you
have had a lot of your students come through your classrooms who
are now out in the private sector putting families together, trying
to put together the down payment for a home, pay student loans,
and so forth. If the long-term interest rates kick up a point or two
and if they are higher than perhaps they need to be, there are
going to be certain people who are priced out of home ownership.
Senator Sasser did a very good job the other day of talking about
the principal and interest payments per month for families with
certain incomes to show who gets priced out of the market. More
and more people get priced out of the market.
Interest rates that are higher than they perhaps have to be have
an inflationary impact. They get built into the price of everything
under the sun. In a sense, it is a cost of capital and it goes into
the base price of things just the same way an energy cost or something else might go in. So, I think a missing part of this debate is
the fact that when interest rates go up, because it also gets built
into product pricing, it has an economic effect in and of itself quite
apart from inflation fighting because it becomes a factor in the inflation even if it is aimed at inflation fighting.
Of course, I think the people who are the hard-liners on this
want to talk about the part that is the inflation fighting without
talking about the part that, in fact, adds to the inflation. To working people who have to live with the burden of high interest rates
or having credit choked off to them, it is a very real problem.
I am concerned, sometimes, because the theorists and the ivory
tower people, sometimes academics, people in the Government bureaucracy, and so forth, live up on a more elevated plane and oftentimes are somewhat removed from being on the front line of the effects of what is happening. That concerns me because I see too
often the Government veering off with policy decisions that do not
really have a very adverse effect on the very people who are making the decisions. It is all very abstract. It is all very distant and,
out across the country where people live.t it is a different story. I
think we need to really understand that it we are going to hold this
country together in terms of the sense of equity and fairness.
I want to add one other point to this because it is an important
part of understanding, I think, the psychology in the country and

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bringing it back to how the economy actually works. That is, that
there has been an enormous shift. in income distribution in the
United States over the last dozen years or so, that the tax policies
of the 1980's, when one looks at income distribution figures, show
an enormous gain at the very highest levels of the income scale and
a certain strip-mining of the amount of national income going to
people in the middle and in some of the lower categories of the income scale in the count7.
I must tell you that am concerned about this because I think
part of what makes the American system work is a broad middle
class, the ability to get to the middle class, Sta)' in the middle class,
and avoiding radical income distribution problems that really tilt
the economy, in an equalitarian sense, way off its axis. Unfortunately, we have a problem in that area.
That is where we start from now. We are not starting from some
textbook model of a normal condition. We have gone through a period of time that has moved us to a point where there is a lot of
income imbalance and inequity in the country, I think, as the data
just tells us. When you throw in high interest rates on top of that
preexisting condition, it has a different kind of an effect than it
might have if we had a different starting point.
To the people who are at the top of the asset-holding scale and
the income scale, it is incidental. If you are going to buy a luxury
yacht that costs $750,000, and it is going to have a captain and a
crew of four and all the other goodies that go with it, the degree
of what you are paying as an interest rate cost, if you are even financing with a loan, is probably incidental to that particular buyer.
If that is somebody that is out there, to them a small change in
the interest rate, or what they would view as a small change in the
interest rate, is rather insignificant. It becomes an academic point
to them.
What I have to tell you in terms of the State where I come from,
the band of people who are in economic circumstances where the
interest rate sensitivity is real in terms of the impact on their lives,
what they can do in terms of either going from being a renter to
a buyer, being able to put enough money aside to have income security in old age, to put enough money aside in the course of a year
maybe to invest in an IRA for the year-a lot of people who can
get the full tax advantage from an IRA cannot afford to save
enough money in the course of the year to do it. A lot of people in
the country cannot afford to do it. You well know that, because you
study these statistics. This never gets into the debate, or almost
never gets into the debate, and that is why I want to shove it into
the debate here.
I am very much concerned that we understand exactly what we
are basing our decisions on when we ratchet up interest rates. If
we have a real inflation problem that is building, then we have to
do something about it. I understand and I support the need to do
that. Or, if we have too much speculation in the financial markets,
which I think the Fed was convinced we had a few months ago, one
of the ways to nip that is with a shift. in interest rate policy. I can
understand and support that.
What I cannot support is an ideological fervor and a reflex that
chases nonexistent inflationary fears that, in turn, come and grind

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down the living standard of a lot of people who are not in a position
to defend themselves from capricious and arbitrary decisions and
whose lives are affected and hurt by what may seem to be a fairly
benign event. It is not a benign event. It is a very real, practical,
economic event.
I have seen in the past, when there has been an economic stripmining of the middle class, that oftentimes there is a desire on the
part of some to heat up a lot of social issues and to get people focused on the social issues so that their attention is diverted there
while their economic situation is being strip-mined. I have seen
this too many times, by lots of different skillful operators, and that
is part of the contemporary political scene in this country. Perhaps
it has been over the whole history of the country.
It is, I think, quite a real factor now, except the erosion of the
middle class since World War II is occurring in a new and a more
dangerous way than it has before. It is a whole new phenomenon
in our country, and it is a very worrisome problem because if you
want to tear America apart, hammer and shrink the middle class
enough, and I guarantee you we are going to have social problems
in this country beyond people's present imagining.
It makes people mad. It makes them frustrated. It makes them
feel that Government cannot work, is not on their side, and so
forth.
Why do I take all the time to say this? Because I think the Federal Reserve is a very lofty place that often is disconnected from
an understanding of the hurly-burly of what is going on down
where real people live and are trying to pay the bills day in and
day out, week in and week out. I have seen too much disconnection.
I have seen too much theory, too much ideology, too much philosophy of an individual or a group of individuals playing in here without a very careful calibration of what this is doing to the country
as a whole, what happens to our society, what happens to the equities within our society, what happens to people's ability to have upward mobility in the society, or the degree to have a broad middle
class that really gives the strength and the cohesion and the stability to our country.
Those are very real factors, and I never hear them talked about,
quite frankly. We troop the Federal Reserve in here all the time.
We get off into arcane economic analysis, and that is all well and
good. That is a big part of the job. It is not the whole job.
When you look backward in time, the Fed did not do a good job
of bringing us through the last recession. The fact that there were
23 policy adjustments while we were losing over $700 billion in national output is not a good performance. I do not care. Anybody
who wants to come along and put the good housekeeping seal on
that now, I do not think fits with what, in fact, happened. The Fed
freely confessed, as they came down through this long period of policy adjustments that did not work, except over a very, very long period of time, vastly different from what they imagined, that there
was an awful lot of pain, suffering, and hardship that was done,
and we unraveled an awful lot of the economic structure of the
country. We have a lot of ex-middle class people in America today
that have moved down several notches partly as a result of the fact
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that the Fed did not do a very good job with their part of the economic policy strategy effort.
They are not the sole culprits by any means. I think our fiscal
policy, our tax policy, and a lot of other things contributed to it.
Certainly our trade policy did as well.
In terms of coming back and isolating where Federal Reserve policy fits in now1 starting from today's conditions, given all the damage that has oeen done-even taking the story today on IBM. I
used to work for IBM. IBM finally announced some very positive
earnings yesterday. There is a question as to whether that is a onequarter deal or if it will be longer than that. But, embedded in the
story was the fact, if it is accurately reported in the Washington
Post that over the last 12 months IBM has gotten rid of 23,000
employees and those are not all people who have reached retirement age. There are a lot of people who have been flushed out of
IBM and a lot of other companies in America who are out there
now, many of whom, if they found jobs, have found jobs at lower
income levels. Part of that restructuring has to go on in any case.
I have detected, over the last several years, a lack of understanding at the Fed about the guts of the economic structure of the population of our country and what that means to having a solid, cohesive1 unified country that is gaining ground, not just some people
in tne society gaining a lot of ground, but the fact that, over the
broad sweep of the economy, people who work hard and who really
are doing the most they can are gaining ground and not substantially losing ground.
So, when interest rates go up, we better make darned sure they
need to go up and that it is not a capricious act, not a situation
where we go out and price somebody out of a child's education or
a retirement account or the chance to become a homeowner rather
than a renter because we are off in a world of arcane theory and
not the practical effect of what it is we are doing.
I want some practical effect, and I have spent enough time myself in academic settings, both teaching in colleges and working on
my doctorate at the Harvard Business School, that I have developed a healthy skepticism for academics. Don't take this personally, but I think there is something to be said for understanding
that theory works up to a point, but if it does not square with what
is happening to Mr. and Mrs. America out in the communities
across this country, then the theories, as comfortable as they may
be in academic circles and in textbooks and all the Lehrers and
Hubers that are out there, may not be worth anything. In fact, they
may be harmful.
I want, at the end of the day, policy decisions that work for the
broad number of people in this country, and that is what we ought
to be steering to. I think it would be helpful, sometimes, if we got
the Federal Reserve Board out of Washington and out of the reserve banking system and into the communities talking with local
people, sitting down with families in working class situations, and
really getting a bif dose of reality, of that reality.
Unfortunately, do not see much of that and so I feel a great
frustration about it. A lot of people in the country do. I want to
voice some of this here, today, because I do not want you, as a new
Federal Reserve Member, to get isolated up there in an ivory tower
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tYJ)e setting and be removed from the kinds of things that I am
talking about. I think you have to force yourself to go out and generate that information, get it into the discussion, and talk about it.
I do not want to just hear the anecdotal situations about somebody who sees a microscopic blip of possible inflation in the future.
If we are going to talk about anecdotal situations like that, then
let's talk about what is happening in the lives of ·working class people as well. Let's get some balance into the discussion. I would appreciate it if you would make an effort to do that.
Dr. YELLEN. I assure you I will make an effort to do it. I think
that the ultimate clients of the Federal Reserve are the American
people, and what the Fed should be pursuing is the economic welfare of ordinary working Americans and Americans generally. That
is what the Fed should have its eye on.
I certainly agree with you that when interest rates rise, it places
a burden on American families and it should not be done unless
there is a good reason for it. It should never be-you used the word
"capricious." That would be irresponsible. Sometimes it is necessary, but it should never be done lightly and it should be done
only for a good purpose.
I was pleased that you mentioned the trends in the American
economy regarding rising disparities in income distribution in this
country. I think that is an extremely important phenomenon, a
very disturbing one that deserves a great deal of attention. I do not
think that it is the Federal Reserve's fault, but we have a situation
in the United States where, between 1979 and 1987, youn~ men
with a high-school education have seen their real wages dechne by
almost 20 percent. I do not think economists yet understand what
has caused that shift. I do not think it can be blamed on the Federal Reserve.
I think it perhaps is a technological change that is occurring in
our economy and other industrial economies throughout the world.
It is shifting the demand for workers away from less skilled people
toward more skilled people, and this is showing up in a widening
of the income distribution. Clearly, this is something that is tremendously frustrating to ordinary Americans and that the Federal
Reserve should be sensitive to, although it is not within the power
of the Federal Reserve, I am afraid, to remedy that problem entirely.
The CHAIRMAN. No. I fully agree with that and I appreciate what
you have said.
I just want to make another point about it, and that is I think
somebody should write this book or do this body of work and go out
and win a Pulitzer Prize with it, maybe even a Nobel Prize. There
is a relationship between the health and well-being of the social
contract in this country, the civil order, the degree of harmony that
we either have or do not have in our society, the measure of economic justice and opportunity, and how the economic system is
working. These are not separate and disconnected elements. They
are absolutely cross-connected.
The great success of America, if one goes back and looks, say, at
the part of this century when we were not caught in extraordinary
events like the Depression, a world war, or things of that kind that
were large scale anomalies, when we were making great progress,

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I think you can find a very clear relationship between the way the
social contract was working and the civil order, sense of well-being,
harmony in the society, people's faith in the system, faith in tne
country, their sense of hopefulness about the future, and how the
economic system was working, the fact that people were making
gains, and so forth. There are a lot of factors that have come in,
technological changes, globalization, and a lot of other things. Tax
policies obviously do it as well.
If you knock the economic justice system askew, it will not take
ver; long before you find that you have a major problem with your
social order and your social contract. A growin~ underclass cannot
break into the system and a large part of the middle class is sliding
backward and out of the middle class. It is an absolute prescription
for great difficulty and disorder in this country. There are a lot of
historical situations that one can look at to find that those elements, played out in other countries, have created those kinds of
situations.
I think we have an element of that happening now. It is not part
of the debate because there is an antiseptic tendency to disconnect
these two things. Too many of the monetary policy and Fed type
theorists live in a self-indulgent world of economic theory without
connecting it up to whether or not it actually works in holding a
society together. These things have to be put together. I do not say
it should be tilted off its axis so that you sacrifice one for the other.
They have to be accommodated together. I think they have been
moving off their axis and that is a real problem in this country. I
think we need to focus on that problem, to bring it to light, because
I think now the facts and the logic are so powerful that only the
most hard-nosed ideology would refuse to see it because it is there.
It is there in the income distribution statistics. I think it is there
in terms of dissolution of families and a lot of other things where,
if you apply enough economic pressure,_you can really destabilize
a country and we get too much of that. That has to cnange and be
part of the policy thinking and part of the policy formulation.
This is not a one-dimensional situation and it is not just economic modeling, a one-dimensional kind of analysis. It is much
more complicated than that. If it were only that, we could do Fed
policy almost by computer and that would really send us to a place
where we do not need to go. I hope you can bring some of that into
these discussions.
Dr. YELLEN. I hope I can be sensitive to this set of concerns. It
is also my set of concerns. I share all of the concerns that you
voiced. While I do not think that the Federal Reserve is in a position to fix all of the problems that you have mentioned, I think
thatThe CHAIRMAN. I do not either, and I do not want to be misunderstood to that effect. I am not saying that.
Dr. YELLEN. I think that the Fed snould be aware of what is
going on in making its own decisions, and certainly take into account the repercussions of what it does for this set of problems.
The CHAIRMAN. Even more importantly, the Fed cannot be a
cure-all, nor are they the cause of all these problems. But, on the
margin, the Fed is an absolutely critical player as to whether we
do things that help solve these problems or we end up inadvert-

86-563 - 95 - 3

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ently doing things that make these problems worse. That is a responsibility the Fed carries, whether it wants to see it or not. That
is the one responsibility that has to be brought into focus.
Dr. YELLEN. I agree with you, that is a responsibility, and I certainly intend to assume that responsibility.
The CHAIRMAN. Thank you.
We will give you other questions for the record. I appreciate your
patience in hearing me express those views.
Dr. YELLEN. Thank you very much. I appreciate it.
The CHAIRMAN. We will excuse you now and call our next nominee to the table.
Let me welcome Ms. Belaga to the table. You have been nominated, of course, as others have said, to be a Member of the ExportImport Bank's five-member Board of Directors.
I should say, for the record, that the principal role of the Exim
Bank is to promote sales by American exporters to all parts of the
world. This is done through a variety of financinJ export programs,
including direct loans, financial guarantees to pnvate lenders, commercial and political risk insurance, and working capital guarantees.
During the last Congress, this Committee, under the leadership
of Senator Sarbanes who then chaired our International Finance
Subcommittee, developed legislation that amended and renewed
the Exim's charter for a period of 5 years until September 1997.
That legislation also established, in statutel the Trade Promotion
Coordinating Committee or the TPCC as it nas come to be known,
and directed it to devefop a Government-wide strategic plan for
carrying out Federal export promotion and export financing activities. Obviously, that kind of a strategy is long overdue in an increasingly globalized economic setting, and it is my own view that
at least part of our past poor performance in economic trade measured by the statistics ie a result of our having failed in not having
an effective and coordinated national export strategy.
On September 29, 1993, Ken Brody, who serves as President of
the Exim Bank, along with Secreta!Y of Commerce, Ron Brown,
and Small Business Administrator, Erskine Bowles, presented the
first annual report of the TPCC to this Committee. We welcomed
that report and look forward to receiving the next one in September so we can continue to develop an ever stronger export strategy
to help U.S. companies compete effectively and increase their sales
overseas.
One of the initiatives is to enhance exports of environmental
technologies. The first TPCC report stated that to enhance our
international competitiveness and export performance, the U.S.
Government should focus on the market for environmental goods,
services, and technologies. That report went on to say that because
the environmental industry is technology driven, its exports will
help create high-wage jobs in this country. In fact, we have just
seen an example of that in the news recently in terms of this foreign sales activity.
Ms. Belaga, I think your extensive environmental experience by
itself, including service as a Regional Administrator of the EPA,
gives you special knowledge and background to enable you to help,
particularly in this area. I understand that, if you are confirmed,

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y<>u will have a key role in promoting environmental technologies.
That industry consists today largely of small- and medium-sized
firms that are very likely unaware of some of the financing support
that is available. Figuring out how we can get those connecting
links in place, I think_. is an opportunity and it is something that
I would hope you coula advance.
Let me now administer the oath to you and ask you to rise and
raise your right hand. Do you swear that the testimony you are
about to give is the truth, the whole truth, and nothing but the
truth, so help you God?
Ms. BELAGA. I do.
The CHAIRMAN. Do you agree to appear and testify before any
duly constituted Committee of the Senate?
Ms. BELAGA. I do.
The CHAIRMAN. Very good. Let me welcome you again. Please introduce anybody that is with you that you want to bring to our attention, and then we would like your opening statement.
STATEMENT OF JULIE D. BELAGA, OF CONNECTICUT
TO BE A MEMBER OF THE BOARD OF DIRECTORS
OF THE EXPORT-IMPORT BANK

Ms. BELAGA. Thank you. I would love to introduce my husband,
Mike Belaga, and my son, David.
The CHAmMAN. Mike, David, welcome.
Ms. BELAGA. I have family here, too, but I know the time is running.
The CHAIRMAN. We welcome them all.
Ms. BELAGA. Mr. Chairman, I can't tell you what an honor it is
to testify before you on my nomination by the President as a Director of tne Export-Import Bank of the United States. This is a
unique opportunity for me. It is a truly superb distinction and a
very, very proud moment for me and my family.
For the past 22/ears, I have had a career as a public servant
in both elective an appointive office and, if confirmed, the position
at Exim Bank brings together all of those years of experience and
enables me to employ the skills, interests, and abilities that I have
developed. Frankly, the thought of making a real difference is exhilarating.
This past year and a half, I have served on the Connecticut Development Authority Board of Directors, and that organization's
challenges dovetail precisely with the mission of the Exim Bank.
Their goal is to enhance the export of the State'sfroducts and, in
doing so, to increase the number of high-wage an high-value jobs
for Connecticut workers. That is the basis for what Exim Bank
does.
Furthermore, under the very able direction of Ken Brody, the
Chairman and President of Exim Bank, the Bank is committed to
important challenges, two of them relating directly to the one area
of my expertise, and that is to the environment.
As you say, Mr. Chairman, the Bank is very interested in developing a broad initiative to stimulate the export of environmental
goods and services. The United States has been on the cutting edge
of developing a diverse range of technologies to deal with all of our
precedent-setting environmental laws, and those technologies are

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now tried and tested and have the potential to be an important
part of our export portfolio. It is a job that begs for energy and creativity.
The Bank is also developing a set of environmental procedures
to more carefully and effectively consider the environmental effects
of a project that Exim Bank may support. I have had 3 years of
experience as the Regional Administrator of the six New England
States for the Environmental Protection Agency. If confirmed, I
will help guide the design of a system that will meet the Administration's environmental goals and, at the same time, assure that
job creation and export opportunities move forward in a timely and
effective fashion.
Your Committee, through the Trade Promotion Coordinating
Committee legislation, has created a blueprint for well-coordinated,
user-friendly trade promotion systems that emphasize assistance to
small- and mid-sized businesses, as well as to large businesses.
One-stop shopping, unified export promotion, outreach to small
businesses, coordinated and consistent training programs, and a
really user-friendly system are all part of the United States' new
dynamic export promotion strategy.
As the Committee is aware, Cliairman Brody is committed to implementing that blueprint. If confirmed, I will eagerly lend him a
helping hand.
Exim Bank is not a new bank. It has a proud 60-year history.
Under the able leadership of Ken Brody and Tino Kamarck, the
Bank is charting new territories. I relish the opportunity to be a
part of that high energy level team. I am committed to make all
of their goals and your goals a reality.
I look forward to working closely with the Committee. Mr. Chairman, I would be pleased and proud to answer any of your questions.
The CHAIRMAN. I want to make a reference to the story that I
mentioned in passing, a moment ago, of today's Washington Post,
the headline, "Clinton Helps Raytheon Win Brazilian Contract;"
subheadline, "$1.4 Billion Satellite Project Goes to the United
States." Then, in the body of the article by Peter Behr, it indicates
that this is to develop an environmental satellite project.
It is certainly good news that a contract of that size would come
to an American company and to American workers. It sounds as if
it was in the face of aggressive competition. I think it is an illustration of the kind of progress we can make where there is an aggressive, proactive strategy, and it turns out this is squarely in the
area of an environmental application. It is encouraging that that
has taken place.
I ask unanimous consent that that article be in the record at this
point.
Just lookin~ at the environmental technologies side of it and our
export potential there, what do you have in mind as opportunities
or first steps of things that you would like to try to do to see what
more can be done there?
Ms. BELAGA. I think it is a double-barreled challenge, but very_
clearly there is a growing market, internationally, for what I call
the environmental infrastructure. United States companies have
been superb in developing our capacity to build wastewater treat-

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ment plants and sewer treatment plants. In the developing countries, those are maJor new challenges. I see us as being able to
make those connections and help get some of those bids, if you will.
It is very clear to me, though, that a lot of the small- to mid-sized
companies really do not know enough about Exim Bank. I think
our challenge will be to reach out and make connections to these
companies and let them know that we exist and that we have the
capacitr to help make them successful exporters.
The CHAIRMAN. I am hopeful that, in that area, you can bring a
special kind of leadership because you have a sense for that area
and certainly the ra_pid pace of change that is going_on there.
It is interesting. Last September's report of the Trade Promotion
Coordinating Committee estimated the potential world market for
the environmental services industry as being somewhere in the
range of $350 billion to $380 billion. If we could go out and get a
good, solid, fair share of that kind of a growing market, that is a
major achievement for our society, and it also obviously promotes
a social good. I think, to the extent that we can preserve the global
environment, everybody on the planet gains from that. This is obviously an area where we can I think, make a good living for our
people and use some of this ieadership that we have developed in
this area that is now out there in our own country but not necessarill out into those international business channels.
Ms. BELAGA. I see it as a real win-win situation. I have long decried the fact that we really are not aggressive enough in terms of
marketing, that our private sector has not really marketed outside
of our boundaries. I think there is a superb opportunity there. I
really look forward to helping make that happen.
The CHAIRMAN. What other major priorities would you emphasize
as you look forward to assuming this job?
Ms. BELAGA. One of the other projects that Ken Brody has started and I know is already in the works at Exim Bank is to develop
some environmental rules by which the Bank can evaluate some of
the applications that come before them. I think that is going to be
a very interesting balancing act, to help the Bank identify environmental difficulties, if you will, and help companies through the system.
The worry that I have is that any kind of procedure that we put
in place would bog down the system and not allow for the quick
turnaround, which is absolutely critical in the export market.
The challenge to develop those procedures is going to be enormous, and I know that people at the Bank have already started to
work with that. They have been talking with the environmental
community and the export community and look forward to coming
and talking to the Committee about that forward motion. That is
a big challenge and I think a very important response to Congress'
concerns.
The CHArnMAN. I am struck by the fact of your own political history and I think it is very important that we have bipartisan Government, not just in terms of the working across the party aisle
here, which is essential and something that I work hard to promote
as best I can, but also, I think, in the very fabric of Government.
We need people who come from both parties, both major parties
who bring that experience, but who bring the same obJective, and

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that is how do we make the system work and how do we sort
through these questions and hear the philosophic or political points
of view but then work through them and get beyond that to the
question of what constitutes good, solid, national decisionmaking
that can win the broad support of people generally, regardless of
their political orientation.
I welcome you into the Government, coming as you do, obviously,
with that kind of spirit and that kind of record. I think the endorsement comments made about you today make it clear that you
have been able to win the admiration and support of people across
the board because of your own objectivity and ).'Our own commitment to a high standard of intellectual effort ana leadership. I appreciate that. I really am glad that you are willing to take on this
particular assignment and bring to bear the experience that you
have. I think you can make a difference for us here and I appreciate the fact you are willing to do so and that your family is supportive of that.
Ms. BELAGA. I am very grateful to you. I am really looking forward to it. It is a unique opportunity and I am excited about it.
I do not think that there is anything partisan about good jobsi good
exports, and a strong economy. I think that is everybody's goa .
The CHAIRMAN. Very good. We will have other questions for you
for the record.
That will do it for today. The Committee stands in recess.
[Whereupon, at 12:15 p.m., the Committee was adjourned.]
[Prepared statements, response to written questions, and additional material supplied for the record follow:]

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PREPARED STATEMENT OF SENATOR ALFONSE M. D'AMATO
ON THE NOMINATION OF JANET LoUISE YELLEN TO BE A MEMBER OF THE
BoARD OF GoVERNORS OF THB FEDERAL RESERVE SYSI'EM

Mr. President, I rise todar to aupport the nomination of Janet L. Yellen to aerve
on the Board of Governors of the Federal Reserve System. Mr. President, Ma. Yellen
is well qualified for the position.
Educated at the distinguished Brown University, and later earning a Ph.D. from
Yale University, Ma. Yellen has demonstrated a mastery of economics and monetary
policy. Through her extensive published research and her prior service at the Federal Reserve as an Economist in the Division of International Finance, she has demonstrated her analy_tical skills to a&Biat the Fed in its complex miBBion as the central
bank and its control over monetary policy.
More importantly, Mr. President, Ma. Yellen has openly expreaaed the importance
of securing the inde~ndence of the Federal Reserve Board. Congreu has deviaed
a ayatem where the Federal Reserve ia accountable to the Congreaa and can beat
serve the American people by focusing on long-term growth. Ma. Yellen has pledged
her support to this cause.
Mr. President, I recommend that this body support the nomination of Ma. Janet
Yellen to the Board of Governors of the Federal Reserve.

PREPARED STATEMENT OF SENATOR CHRISTOPHER J. DODD
ON THE NOMINATION OF JULIE D. BELAGA TO BE A MEMBER OF THE
BOARD OF DIRECTORS OF THE EXPORT-IMPORT BANK

Mr. Chairman and Members of the Committee, it is my great pleasure to introduce to the Committee a long time Connecticut resident and a dedicated public aervant, Julie Belaga. Ma. Belaga i• before the Committee today as the President's
nominee to be a Member of the Board of Directors of the Exl)Ort-lmport Bank. I
commend President Clinton for his selection of Ma. Belaga and I am confident that
the Committee will look favorably upon this nomination.
Mr. Chairman, as we all know, export• are crucial to the economic base of this
country. Ex_ports make our companies more efficient and competitive and they provide essential opportunities for the working men and women of America. In Connecticut and throughout the country, exports are a critical source of high-paying,
high-akill, high-quality jobs.
Central to the succeu of American exports is the role of the Export-Import Bank,
which J>rovidea financing auistance for American companies that are seeking to
gain a foothold in overseas markets. Last year the Export-Import Bank supported
$17 billion in American exJ)Ort&, its highest level ever. In Connecticut, Exim supported nearly $80 million of exports in 1993, helping to create or to sustain thousands of jobs.
I have every confidence that the work of the Export-Import Bank will be atrenizthened by the addition of Julie Belaga to the Board of Directors. Julie has a long 'history of public service and she has extensive experience in important management
and leadership positions. I've had the J>leasure of knowing Julie for a number of
years and I can assure the Committee that when she sets her mind to something,
she knows how to achieve results.
Julie has held a number of _public and private positions during her distinguished
career in Connecticut. She held a IO-year term as a State Representative in Hartford. from 1976 to 1986. From 1987 to 1989 she served 88 an acljunct lecturer on
p.ublic:_policy at Harvard University and 88 a television commentator for WTNH-TV,
New Haven's ABC affiliate.
From 1987 to 1988 she served as a Presidential ApJ)Ointee on the National Advisory Council on Adult Education. More recently, Julie has also served as a member
of the Board of Directors of the Connecticut Development Authority, a State investment agency.
Julie has had extensive exposure to environmental iuuea, a matter of increasing
importance for the Export-l1t1_port Bank. From 1989 to 1993 she served aa the Retponal Administrator for the Environmental Protection ~ncy in Boston. Aft.er leaving the EPA, Julie became Senior Vice President of Makovaky & Company, launching that company's Environmental Services Division.
Julie'• expertise in environmental issues will be of great auistance to comfanies
that are trying to tap into the growing worldwide market for environment& technologies-a market that, according to one estimate, could reach more than $300 billion by the year 2000.

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Over the courae of her distinguished career, Julie has received a number of citations and awards, starting with being named the Outstanding Freshman Legislator
in 1977 and later being named one of the Top Ten Legislators of the Year in 1985.
She has alao been the recipient of the Uberty Bell Award for Outstanding Public
Service, in 1985, the Governor John Davis Lod,te Award for Outstanding Public
Service, in 1990, and the Women in Management Award. also in 1990.
Clearly, she is someone who has excelled at her field and who has been recognized
by her peers and her aBBOCiates for her accomplishments.
In conclusion, Mr. Chairman, I know that the Committee will move quickly to approve this nomination so that Julie Belaga can take her position at the Export-Import Bank. I commend the President for this timely and well-considered selection,
and I look forward to working with the Committee in moving this nomination forward.

PREPARED STATEMENT OF SENATOR JOSEPH I. LIEBERMAN
ON THE NOMINATION OF JULIE D. BELAGA TO BB A MEMBER OF THB
BOARD OF DIRECTORS OF THE EXPORT-IMPORT BANK

Thank you, Mr. Chairman. I am delighted to be here today to speak in su_pport
of President Clinton's nomination of Julie Belaga to be a Director of the Exim Bank.
I've known and worked with Julie for over 20 years, from our days together in Connecticut's State Senate through her recent tenure as Regional Administrator for the
U.S. Environmental Protection Agency. She ia currently a gubernatorial appointee
to the Board of Directors of the Connecticut Development AuthoritY.t and she serves
on the Connecticut Environmental Industries Initiative Advisory HOard. Julie has
demonstrated two abilities critical to this newest honor; she can imagine a longterm vision and she's tough-minded enough to take you there.
As you know, the Con~BB has assigned new environmental responsibilities to the
Ex:im Bank. Julie's the ideal candidate to help the Bank develop a system for asseBBing the environmental impacts of the project• it considers supporting.
I also anticipate that Julie will be an aggreuive advocate for the Exim Bank's
aueport of envtronmental technol~ exports. I know she believes, as I do, that thia
"w1n-win" proposition will create nigh-paying joba and aaaiat in the global effort to
reduce pollution and other environmental risks.
There are enormous worldwide busineu oppartunities in the area of environmental technologies, Mr. Chairman. The Orgaruzation of Economic Cooperation and
Development estimates the annual global market is currently $200 billion and predicts that it could climb to $300 billion by the year 2000. An estimate by the Environmental Busineu Council of the U.S. places the market at $426 billion by 1997.
Unfortunately, in our own country, U.S. industries have been losing significant
market share to their competitors in the last 10 years, notably in the areas of air
pollution control and wastewater treatment technologies. Thia is particularly disappointing given that U.S. industries invented many of these technologies.
Our situation isn't much better worldwide. Studies cited by the U.S. Department
of Commerce show that while German industries export between 30 and 40 percent
of all the environmental technology they manufacture, U.S. industries export only
between 5 and 10 percent of their production.
We know that the ~vernments of our economic competitors routinely support the
development, marketmg, and export of new technologies. The United States muat
also help its businesses take advantage of these new opportunities. We need to
adopt Government policies that strengthen the development of this industry at
home and encourage efforts to export the technology.
The Exim Bank is a logical place to start. A recent report by the Congressional
Office of Technolo~ ABBistance suggests that it hasn't always been easy for small
businesses, in particular, to get assistance from the Bank. Smaller and new-to-export environmental firms are often not even aware of these financin~ mechanisms.
OTA also noted that access to the Bank has been limited because 1t onl)' has six
domestic offices and no overseas offices; Japan's counterpart bank, on the other
hand, has 16 overseas offices. Julie knows the imJ)Ortance of small businesses to the
future of our economy, and she has worked with dozens of them over the years; I'm
certain she11 help make sure they have access to the Bank's support.
President Clinton's nomination of Julie Belaga to be a Director of the Exim Bank
signals a change in thinking and a new support for the development and export of
U.S. environmental technologies. I'm very excited about her nomination and urge
my colleagues to move it as quickly as possible. Thank you.

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PREPARED STATEMENT OF JANET LOUISE YELLEN, PH.D.
CoNCERNING HER NOMINA11ON TO BE A MEMBER OF THE BoARD OF GoVERNORS
OF THE FEDERAL RESERVE SYSTEM

Chairman Riegle, Members of the Committee, I am pleased to appear before you
toda.r_ as President Clinton's nominee to serve on the Board of Governors of the Federal Reserve System. I am deeply honored that the President has nominated me to
serve aa a Member of the Board.
The decisions of the Federal Reserve affect the economic well-being of all Americana throuirb their im~ on ouH>ut growth, job creation, inflation, interest rates,
and the vaTue of the dollar. The Fed also has unportant regulatory and supervisory
responsibilities for the safety and soundness of the bankinf system, for the integrity
of the payments mechanism, for the enforcement of the fan- lending laws, inclucling
the Community Reinvestment Act, and for other consumer issues.
H l am amfirmed, I pledge to work with other Members of the Board to craft a
monetary eolicy geared toward •maximum emplo~ent stable prices, and moderate
long-term interest rates"-the goals established 1n the Federal Reserve Act-and to
faithfully execute the regulatory responsibilities entrusted by Congress to the Federal Reserve Board. These are challenging and important tasks and I will devote
my full energies to carrying out these duties to the liest ofmy ability.

Bloeraphy
Before commenting on some of the issues confronting the Federal Reserve, let me
briefly describe my background and qualifications for the position as Governor. I
was born and raised in Brookl,Yn, New York, but I have lived in California since
1980 where I serve as Bernard T. Rocca, Jr. Professor of International Business and
Trade at the Haas School of Businesa of the University of California at Berkeley,
teaching macroeconomics and international economics to MBA's and executives. My
interest in economics is longstanding. I majored in economics at Brown University,
graduating in 1967, and received my Ph.D. in economics from Yale in 1971. After
that, I was Assistant Professor in the Harvard Economics Department from 1971
to 1976 and taught at the London School of Economics and Political Science from
1978 to 1980. From 1976 to 1978, I was an Economist in the Division of International Finance at the Federal Reserve Board.
I have published ori_ginal research on a wide variety of topics relating to international economics and macroeconomics. My research has explored the causes of cyclical fluctuations and the potential for monetary policy to mitigate them, the wage
setting policies of ru-ms, the measurement of labor market slack, and the impact of
macroeconomic performance on job switching and job satisfaction. I have also studied the implications of globalization for international investment and employment,
the linkages between exchange rate changes and the U.S. current account deficit,
and the consequences of German monetary union for East German reconstruction.
I hope that this broad background and experience have equipped me with the analytical tools and historical perspective needed to analyze emerging trends in the
domestic anc! world economies and to help in the formulation of appropriate monetary J>C!licies.
Furthermore, as a faculty member in a professional school of management, I have
been immersed in the problems of business and have gained an appreciation of the
economic conditions which foster a willingness on the part of ru-ms to hire and train
workers, to invest in plant and equipment, and to undertake new research and development-the investments which are necessary for long-run economic growth and
enhanced living standards of American families.
The Goals of Monetary Policy
Price stability should be a central goal of monetary policy. There are many reasons for according high priority to this objective. With high and unstable inflation,
profits derive disproportionately from outwitting the financial system rather than
from producing the products that consumers need. Inflation creates uncertainty and
distorts price signals, complicating business planning. Under the current tax system, higher inflation raises the cost of capital, diminishing the incentives to save
and invest. Inflation erodes the wealth of small savers whose assets are fixed in dollar terms. And, as interest rates rise to compensate for inflation, debt service burdens increase as a fraction of income, making purchases of homes and cars
unaffordable for many families. Workers worry about how to cope with rising prices
and meet their current bills. With uncertainty as to whether wages and salaries will
ke~p up with needs, times of inflation often become times of labor strife.
Many factors, including fiscal policy, oil prices, exchange rates, wars, and productivity shifts, affect the behavior of prices in the short run. But, in the long run, in-

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nation on a sustained basis cannot occur unless monetary policy accommodates it.
The Federal Reserve controls the Nation's mone_y supply, and thus, the FOMC effectively determines the level or inflation over the longer term. The Fed's responsibility
is to choose policies that are designed to maintain a noninflationary environment.
The aecond objective of the Federal Reserve should be to kee,.P the economy growing as close as pouible to the "natural rate or unemplo)'J118nt -the maximum feasible emplo}'l!lent level consistent with stable inflation. The natural rate of unemployment is the lowest rate or unemployment that the Fed can target without risking atteluating inflation. My goal, as a Governor or the Federal Reserve Board,
would be to conrme unemployment to this level.
My personal agenda as an economist has been to understand the causes or unemployment and discover ways to alleviate its pain. In times or high unem_ployment,
workers who lose their jobs race the terror or being unable to support themselves
and their families. The toll of high unemployment, like that of a regressive tax, falls
most heavily on groups in the work force that are least able to bear the burden.
Young workers deprived or gainful employment may have c-.rs which are permanently stunted because they cannot develop the skills which are critical to their
lo11g-term iob proseects,
In addition, in times of high unemployment, even those who have work often become stuck in jobs and places where they are unhappy, with limited possibilities to
move.
A slack economy lowers corporate profits, diminishi!li the ability of firms to invest
and fund R&D, and creates unused capacity, diminishing their incentives to add to
cap_acity.
Through this channel, high unemployment harms long-term living standards. A
rough rule or thumb is that each percentage point or unemployment, in exceu or
the natural rate, costs the economy about 2 percent or GDP-roughly $130 billion
in today's economy. Thus, the costs or unemployment are jJJ"eat and, as a Governor
of the Federal Reserve, I would do my utmost to maintam the maximum feasible
level of employment consistent with the achievement of price stability.
The Tactic• of Monetary Policy
In the short run, the Federal Reserve faces a tradeoff between the goals or low
inflation and high employment. But a monetary Policy which eushes the economy
berond its potential for the sake of current job gams is shortsighted and ultimately
uriJ'air to American workers. Such gains are transitory-a loan which must be repaid in the form or job loues at a later date. The pursuit or job gains in the 1hort
run, in exceu or what the economy can sustain, en~nders inflation, and later job
losses constitute the cost or bringing inflation down. The reoeuion of 1982-83 illustrates the enormous price that workers and busineues paid to brin~inflation under
control after it built up in the 1970's. Having incurred such a hi
price to lower
inflation then, it would be foolhardy now to squander the fruits or t is effort.
I join the Federal Reserve at a time when the macroeconomic fundamental• are
sound. Inflation is the lowest it has been in almost 20 years, except for a brief period in 1986 when oil prices were tumbling, and with strong GDP growth, the unemployment rate has declined substantially. I believe that the Federal Reserve's major
goal at this juncture should be to create monetary conditions conducive to stable
real F,wth at a pace matchin__g the economy's growth in potential output.
This is a challenging task. The impact o( Federal Reserve policies on the economy
occurs with a substantial lag, and random shocks and uncertainties concerning the
strength of key economic linkaf{es make forecasting difficult. I agree with the Fed's
decision to reduce monetary stimulus-before the emergence of obvious inflationary
pressure-in order to avoid overshooting the natural rate. On the other hand, the
appropriate amount of tightening involves some guesswork and it is difficult to
know whether the actions that have been taken thus far will prove sufficient to prevent overheating, insufficient to the task at hand, or even excessive.
The role of a Fed Governor now, as always, is to monitor every available economic
indicator in order, continually, to update forecasts of economic performance and to
make needed policy readjustments, constantly balancing the risk, on the one hand,
of choosing a monetary policy which is too expansionary, threatening overheating
of the economy, and on the other, of a policy which is too tight, threatening jobs
and income growth. This is a difficult task, and no simple formula or single performance indicator (includin~ the price of commodities, gold, bonds, stocks, or currencies,
fluctuations in inventones, durable goods orders, monetary aggregates, retail sales,
and so on), should receive undue attention. Instead, the job of a Governor is to make
reasoned jud_gments about likely future trends in li~ht of all or the available economic data. In this task, I hope to make a constructive contribution to the work of
the Board.

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39
I am a strong believer in the independence of the Federal Reaerve. A policy regimen geared toward long-term economic health must avoid the temptation to conduct
policies which overheat the eamom:r for short-term gains. Occasionally, a doae of
bitter medicine must be administered for health to be restored. Congress wisely deviaed a system which enables the Federal Reserve to take the long view. I believe
that this system best aerves the interests of the American people and ultimately enhances economic performance. I also aepreciate the necessity for accountability on
the part of the Fed to CongreBB and ultimately to the American people. If I am confirmed. I pledge my full cooperation in this process.
In conclusion, I would lilce to thank the Committee for the speed with which this
hearing has been scheduled. In my opening remarks I have focused on just OM of
the responsibilities of the Federal Reserve-the conduct of monetary policy. I am
well aware of the many other duties of the Federal Reserve, with respect to the BU•
pervision and regulation of the banking system, and am learning more about the
challenging ~)icy iBBues confronting Congress and the Federal Reserve in BUch
areas as product line deregulation, enforcement of fair lending laws, reduction of
regulatory burden, and poBBible measures to reduce any risks posed by derivative
instruments to the safety and soundneu of the financial system.
I will be happy to answer any questions that you might have.

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40
STATEMENT FOR COMPLETION BY PRESIDENTIAL NOMINEES
Name:

Yellen
· Janet Louise
------r.,.rn==----------,-,,,,=.,"'n_____

Position to which
nominated:

Covet"not' of .... c

:-.,..e .. ,'

0

Date of

ese-,e

Date of birth: _..:'...
,;;3,::n,-"""".-"•~=.,--,";;;~,,'6,:,,- Place of birth:

nomination:
3rooitl•rn

Marital status: _"_.
..a,.r._T,._,'-'e,_,d,_
·
_ _ _ _ Full name !)f SPOuse:

Name and ages
of children: Robert Jose~h Akeelof .

l 99'-

Yori<

Georu Arthur Aknlof

11___________

Degrees

Cates
artenoe<l

Institution

Education:

~•v

June 4

I O&iQ-10!,1

Dates of
aecrees

rece,vea

dfalc:ia

Srovn t..'ni.,ersit •1

8 ;\

Yale t! ni vers:c ·,

Ph. 0.

l2/71

Hone~ and awards: List below all scnolarsnios. fellowshios. honorary degrees. military m!'<lals. honorary society
membersnips. ana any other soec1al re-co~n,ti\Jns tor outstanding service or acnievement.
Phi

~et.1

Kappa,

t '1t:f5

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41
Memllei'Ships:

List below 111 memoersruos and otf,cu l'ltld
civic. cnat1ta011 and othtr 0rgan1zat10ns.

in

orofen1onal. trattmal. business. 5Ctiolarly,

Ortllh.tat1on

Council on f'oretgo Relation:,,
American Economics Association

1976-SJ

-'-'~"•m,,,b'-'•,.,r~----!fom1natin~ Committee

l\dvtsor·, Committee
to ?res.

1988-j0
_.1~0""~"'6_-~.._7..__ __

Comittee co the Status 1f
Women in the C:.conomics

Incernac ional :'rade and
finance Assn .
Congregation Beth c-3

1990-1 .... ,, ... c
I QPJ nce,eac

.-;)"1.IIL-------

( CONTI ~UED OS A TT ACH!1ENTl

Employment record: Ust 0e1ow a11 oosuions ne1d s,nce colle~e. i:,cludinc ~!'le.. r1tle 'Jr de~,:nption of job. name of
1m01oyment. location or work. ano. oat'!:.. ,"Ji inctJ~:-.·• ernotoyment.

Bernard"'

3-££"3 • ...

!) .. ,...; ...

ceo:c.- ;;,; ,...,re~n,c'ccal :Su,1ce-ss

and Trade, ·.:alter ,\. Haas School oi Business.
Unive:-sitv 'Jf Ca~i!ornia, 3e:-i<e~ev
1985-i092
1982-: 985
1980-:981

Professor, 'Jaite:- A. !iaas Sc~ool of 31,;,siness
University of Caiifornia. aeri<.eley
Associate ?rofessor. Schooi of Business
Aam1n1st:-ac.. on, i.:n1\·ers1ty ot ·: a.Li:orn1a. aerileley
Assistant ?rofessor. School Jf 3usiness
'ect1Jce ...

'ondac sc · caJ ,· --ooomi---

201

<:>o1it 4 ca'

Scier:ce. London. Engiand
~ 7 c . a0'---'''-'c'-'cccr.c""~"",.,_s._r_';.ii.;.;··.ii.>.s.1.1r'""c:....;';.;;'-·.:;•..
c ...
e•:;;;•::.aut'-'"-"0-"o"'a.1.i....•:.;•c,;":.,acco.,;;c.o.•--....r:..a1<d-'•'-and Financ~al Stuaies Section, 3oard oi Gover:1ors of

the F•der3l ~ese--:e , .. stem ·..:ash;ouon
?97!-1976

2

Assistant :>.,.,...ressor 2f C'cccomics, :-tarvard L"nivers· ;•:,
Cambr:.og-e, :-!.A
Consultant, JivisiC'n of :nce:-nationai Finar:ce. Soard
oi Gover!'lo:'s s>f. tne ?ede:-.a. :\eser·,e System, ._..asn1:-:~tor., O.t
Teachin2 :"e:lo.., anc. ::.esea:~n Assistant. 'ia~e ~-ni•:ersity,
Suc-.mer i:-:te:':":, ·,,;otr.e~·s 3ureau,
:..aoor, ',,,'.asn1n;ton, ..,.,...

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42
Membership• • cont'd

011.GANIU.TION

Highland• Country Clu.b
The Faculty Clu.b, U.C. Berkeley
California Public Interest Reaearch
Group
National Abortion Rights Action
League
California Abortion Rights Action
League
Planned Parenthood
Yale Club of San Francisco
KQED
Hadassah
Economists Concerned About the
Arms ~ce

OffICB BIILD

DATU

None
None
None

1978-present
1982 -present
1987-presenc

None

1988-present

None

1988-present

None
None
None
None
None

1988-present:
1993-presenc
1984-presenc
1985-presenc
1989-presenc

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43
Govemment

exoeriencr.

List any e,perience in or dil'9CI association with Federal. State. or local ,.,.,.mments. in•
cludin1 any advisory. consultative. honorary or other part-time s.erv,c• or positions.
1993- 1994

Congrulional Budget Office-Panel of Econoaic Advisen, 1993-9•

1977-1992

Servad on National Science Foundation Advisorv Panal in
[conoaics and several other NSF review panels.
Ecouoailt, Divi ■ ion of Inuroational Finance, Trad• and
Flnanc1aI Studies Section, Board or Covemor ■ or the ,ederal
l•••rv• Sy ■ t••• Wa1hingcon, D.C.

1977-1978

1974-1975
1974-1975

Conaultant 1 Division of International Finance, Board of
Governors of th• Federal Raaarv• Syst••• liiaahingcon, O.C.
Consultant, Concrusional Budcot Office

PubliSlled

wntinp:

List the titles. gublishers and dates of books. articles, repom or oilier published materials

you

have

wnnen.

SEE AnACHMEIIT

Political
affiliations
and activities:

Ust all membtrshios ana offices neld in ano services rendereo to all political parties er
election committees ouring•the last 10 years.

NONE

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44
Publications of Janet L Yellen:
"Consequences of a Tax on the Brain Drain for Unemployment and Income Inequality in
Less Developed Countries," (with Rachel McCulloch), Journal of Development
Economics, September 1975; reprinted in J. Bhagwati, editor, The Brain Drain and
Taxation: Theory and Empirical Analysis, North Holland, 1976.
"Commodity Bundling and the Burden of Monopoly," (with William James Adams),
Quarterly Journal of Economics, .\ugust 1976.
The Limits of the Market in Resource Allocation (with Kenneth Arrow and Steven Shavell),
Japan Trade Council, monograph, 1977.
"Factor Mobility, Regional Development and the Distribution of Income." (with Rachel
McCulloch), Journal of Political Economy. February 1977.
"What Makes Advertising Profitable?" (with William James Adams), The Economic
Journal. September 1977.
"Factor Market Monopsony and the Allocation of Resources," (with Rachel McCulloch),
Journal of International Economics, January 1980.
"On Keynesian Economics and the Economics of the Post-Keynesians." American
Economic Review. Papers and Proceedings. May 1980; reprinted in John Maynard
Keynes: Critical Assessments, Vol. 4, John Wood, editor. Croom Helm Ltd. , 1983.
"Can Capital Movements Eliminate the Need for Technology Transfer?' (with Rachel
McCulloch), Journal of International Economics. May 1982.
"Technology Transfer and the National Interest," (with Rachel McCulloch). lnternarional
Economic Review, May 1982.
"Efficiency Wage Models of Unemployment." American Economic Review. Papers and
Proceedings, May 1984; reprinted in New Keynesian Economics. Vol. 2,
Coordination Failure and Real Rigidites. N. Gregory Mankiw and David Romer,
editors. MIT Press. 199 I.
"Unemployment through the Filter of Memory," (with George Akerlof). Quarterly Journal
of Economics, August 1985.
"A Near-Rational Model of the Business Cycle with Wage and Price Inertia." (with George
Akerlof). Quarter(~· Journal of Economics, September 1985; reprinted in New
Keynesian Economics. Vol. I. Imperfect Competition and Sticky Prices. N. Gregory
Mankiw and Da\'id Romer. editors. MIT Press. 1991.

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45
"Can Small Deviations from Rationality Make Significant Differences to Economic
Equilibria?" (With George Akerlof), American Economic Review, September 1985.

Efficiency Wage Models of the Labor Market (with George Akerlof), an edited collection of
papers with an introduction by the authors, Cambridge University Press, 1986.
"Rational Models of Irrational Behavior," (with George Akerlof) American Econorr.i,:
Review, Papers and Proceedings, May 1987.
"Fairness and Unemployment." (with George Akerlof), American Economic Review. Papers
and Proceedings, May 1988.
"Discussion" of "The New Keynesian Economics and the Output-Inflation Trade-off," (with
George Akerlof and Andrew Rose) Brookings Papers on Economic Activity, 1988:1.
"Job Switching and Job Satisfaction in the U.S. Labor Market." (with Geor~e Akerlof and
Andrew Rose), Brookings Papers on Economic Activity, 1988:2.
"Is There a J-Curve?" (with Andrew Rose), Journal of Monetary Economics, July 1989.
"Introduction" to "Symposium on the Budget Deficit," Journal of Economic Perspec1ives.
Summer 1989.
"Discussion" of "The Beveridge Curve," (with George Akerlof), Brookings Papers on
Economic Activity, 1989:1.
"The Fair Wage/Effort Hypothesis and Unemployment," (with George Akerlof), Quarterly
Journal of Economics, May 1990.
"How Large are the Losses from Rule of Thumb Behavior in Models of the Business
Cycle?" (with George Akerlof) in William Brainard. William Nordhaus and Harold
Wans. eds .• Money. Macroeconomics and Economic Policy: Essays in Honor of
James Tobin. Cambridge. Mass: M.I.T. Press, 1991.
"Waiting for Work," (with George Akerlof and Andrew Rose) National Bureau of
Economic Research Working Paper No. 3385. June 1990.
"East Germany In From the Cold: The Economic Aftermath of Currency Union," (with
George Akerlof. Andrew Rose and Helga Hessenius), Brookings Papers on
Economic Activity, 1991 :l.
"Discussion" of "Unemployment. Non-Employment and Wages: Why Has the Natural Rate
Increased through Time?" (with George Akerlof) Brookings Papers on Economic
Activity, 1991:2.
Comment on "East German Economic Reconstruction," by Rudiger Dornbusch and Holger
C. Wolf, in The Transition in Eastern Europe, Olivier Jean Blanchard, KeMeth A.
Froot and Jeffrey Sachs, editors, NBER and University of Chicago Press, 1994.
"Gang Behavior, Law Enforcement and Community Values," (with George Akerlof), in
Henry Aaron, Thomas Mann and Timothy Taylor, eds., Values and Public Policy,
Brookings Institution, 1994.

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46
Political
ccntributicns:

Qualifications:

Itemize all oclitic:al ccntributicns cl SSOO er more tc any individual. campai1n crpnization. political oarty. POiiticai act1cn comm,ttff er similar entity durin1 the last
years and identity 1111 sgecific a..-ms. data. and names ct the recipienu.
·

••ant

Clinton foe Pr111dcar Caarefan·

SJQOP

Duk.altil for Ptllidtnt

S 500

State fully your Qualifications 10 ser,e in the position to wllic:11 you llaw bffn named.
(aftlet1 lftftt)

SEE AnACHED

Future em01oyment
relationsnios:
l. Indicate whether you will sewr all ccnnecticns with your pruent employer, business
firm. association or or1an1zation ii you are confirmed by the Senate.
vill 1n1;1a11v be on
California, Berkeley.

leave of ab1cnc1 from th, Univcrsitx of

2. As far as can bl foreseen. state whether you hlW any plans after completin1 ao-n·
ment service to resume employment. affiliation or prect,ce with your prev,ous em•
ptoyer. business firm. assoeiation ororpnization.
NO

3. Has anybody made you a commitment to I job after you leaw aowmment1

4. Do you exoect to serve tlle lull term for wllicll you llave bffn appointed?
YES

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47
Qualifications:
My knowledge and experience in the fields of macroeconomics and international economics
qualify me for this position.
I have published original research on a wide variety of topics in international and
macroeconomics. I am best known for my work exploring the causes of price ai,d wage
rigidity. This work provides a tiasic ,at:onale for the use of monetary policy to stabilize the
ci:or.omy. My research on macroeconomics has also explored wage semng policies of firms
and their impact on unemployment. alternative measures of unemployment. and the impact
of macroeconomic performance on job switching and job satisfaction. In international
economics, I have studied the linkages between exchange rate changes and the U.S. current
account deficit and examined the implications of German monetary union for East German
reconstruction. I have also published papers in the field of industrial organization. This
background prepares me to analyze the wide range of monetary policy. and intcr.1ationai
and regulatory issues confronting the Federal Reserve Board.
I have served on the faculty of the Walter A. Haas School of Business Administration at
the University of California. Berkeley since 1980 where I have taught international and
macroeconomics in the MBA and executive education programs of the School. I have been
Professor since I 986 and was named to the Bernard T. Rocca Jr. Chair of International
Business and Trade in 1992. I am also a two-time winner of the Earl F. Cheit
Distinguished Teaching Award.
I received my B.A. summa cum laude from Brown University in 1967 and my Ph. D. in
economics from Yale University in 1971. From 1971 to 1976 I was on the faculty at
Harvard University, after which I served as an economist in the International Finance
Division of the Federal Reserve Board. I was a faculty member at the London School of
Economics and Political Science before moving to Berkeley.
I currently serve as a Senior Adviser to the Brookings Panel on Economic Activity and as a
member of the Economics Panel of the Congressional Budget Office. I have acquired
administrative experience by twice serving as Chairperson of the Economic Analysis and
Policy Group of the Haas School of Business and as Director of its International Business
Program.

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48
Potential conflicts

of interest:

l. Describe any financial arran1ements or deferrtd compensation a1reements or other
continuing duhncs with business auoc11tes. clients or customers who will be affected by policies wn1ch you will intlu~c• ,n the position to wnich you have bNn
nominated.

~ONE

2. List any investments. obligations. liabilities. or other relationshios which mignt invol.,.
petenttal con!licts at interest with the pos1t10n to wn1cn you naive been nom,nateo.

Small inve stments in 1!!'1 and 'Jel!.s Far'lo Sani<.
Panel .Ji Economic Advis ers , Co n,ress: ional Sud~et Office
Senior Adviser, Srookin~ s ?anel on Economic Activity

3 . Describe any business re,at10nshi0. dealing or financial transaction (other than taxpaying) wni.:h )'Ou have had during the last 10 years w1tn tne ~eder'II Govemment.
whetner tor yourself. on cenaif of a chent. or ,ct1nig as an aigtnt. tnat m1cnt in any
way ccnsutute or resu1t in a possiole conflict of interest w,th tne pos1t10n to wh.Ch you
ha'w'e ceen nom,natea .
~ONE

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49
4. List any lct::,y1n1J act1v1ty during the oast 10 years in wrucn you have enpged for the
puroost of :,irec!ty or 1noirectly ,nfluencinlJ the oassa!Je. defeat or modification of
any te!1Slat1on ,i tne not1ona1 levet of government or atftctrng the administration and

txecuuon of nattona, law or public ooticy.

5. E.xcla,n how you will resotve any ootential conflict of interest that may be disclosed by
your responses to the a:,ove 1terns.

I will sell shares in these investoents and resign fr om

a.dvisorv

positions .

Civil. cAminal and

in.,.st1p10,y
actions:

1. Give the full dc~ails of any c,vil or cnm1naI oroceeding in which y:a, were a detencant
or any ,nou,ry or 1nvesu~auon by a Feoeral. State. or local agency in wn,ch you were
the su01e-:t ct the 1n0u1ry or 1nvesugat1on.

2. G,ve tht full details ot any oroce-eo,ng. inou,ry or invest•~atton by any proressaonal
assoc:a t,on ,nc1uo,n~ any oar association 1n wn,cn you were tf'le suo1ect of the oro-

ceeo1ng. ,ncu,ry or ,nvesugauon.

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50
PREPARED STATEMENT OF JULIE D. BELAGA
CONCERNING HER NOMINATION TO BE A MEMBER OF THE BoARD OF DIRECTORS
OF THE EXPORT-IMPORT BANK

Mr. Chairman and Members of the Committee, it is an honor to testify before you
on my nomination by the President as a Director of the Export-Import Bank of the
United States ("Exim Bank•). This is a unique opportunity for me and a truly superb distinction. This is also a very proud moment for me and my family.
For the past 22 years, I have had a career as a _public servant in both elective
and appointive office. If confirmed, the position at Exim Bank brings together all
of those years of service and enables me to employ the skills, interests, and abilities
that I have developed. The thought of malting a real difference is exhilarating.
This past year and a half, I have served on the Board of Directors of the Connecticut Development Authority. That organization's challenge dovetails with the mission
of Exim Bank. The goal is to enhance the export of the State's products and, in
doing so, increase tne number of hi~h-wage and high-value jobs for Connecticut
worlcers. That is the basis for what Ex1m Bank does.
Furthermore, under the ve11 able direction of Ken Brody, the Chairman and
President, Exim Bank is committed to important challenges, two of which relate directly to one area of my expertise, the environment. The Bank is developing a set
of environmental procedures to more carefully and effectively consider the environmental effects of a project that Exim Bank may supl)Ort. I have had 3 years of experience as the Regional Administrator of the si... New England States for the Environmental Protection Agency. If confirmed, I will help guide the design of a system that
will meet the Administration's environmental goals and, at the same time, assure
that job creation and export opportunities move forward in a timely and efficient
fashion.
Exim Bank has also started a bold initiative to stimulate the export of environmental goods and services. The United States has been on the cutting edge of developing a diverse range of technologies to deal with our precedent-setting environmental laws. Those technologies are now tried and tested and have the potential
to be an important part of our export portfolio. It is a job that begs for energy and
creativity.
Your Committee, through the Trade Promotion Coordinating Committee legislation, has created the blueprint for well-coordinated, user-friendly trade promotion
systems that emphasize assistance to small- and medium-sized businesses, as well
as large businesses. One-stop shopping, unified export promotion, outreach to small
business, coordinated and consistent training programs, and a truly user-friendly
system are all part of the United States' new dynamic export promotion strategy.
As the Committee is aware, Chairman Brody is committed to implementing tnat
blueprint. If confirmed, I will eagerly lend him a helping hand.
Exim Bank is not a new bank. It has a proud 60-year history. Under the able
leadership of Ken Brody and Tino Kamarck, the Bank is charting new territory. I
relish the opportunity to be a part of that high energy level team. I am committed
to make all of their goals and your goals a reality.
I look forward to working closely with the Committee. Mr. Chairman, I would be
pleased and proud to answer any questions you or the Committee may have.

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51
STATEMENT FOR COMPLETION BY PRESIDENTIAL NOMINEES
Name: _ _ _....;;l..;e_la_~-:-.=.,,:':::------

D.

Jul;=..,

IOINUI

Po~~~;tc:h Soard of Directors -

D•te
of
nomination:
_ _ _ _ _ _ _ _ __

Ex-Ill Banlr.

Date of birtl'l:_..:~.:2.,--',!'-'~"'l"y_.,_1~~2....,;,30...,_ Place of birth: _.a...o..., ...c...
ao.._......,.•.__ _ _ _ _ _ _ _ _ _ _ __
Marital status: _ _Ha_r_r_i_e_d_ _ _ _ Full name of spouse: _ _ _11
_Y__r_o_n_ll_._B..;.e_l>..g._a_ _ _ _ _ __
Nome and aces

of c:hildren:

Debra Sue Bebga - 40
David Doren Belaga - )9 _ _ _ _ _ _ _ _ _ __
Heather Gail Belaga -30

----------Oatn

Education:

anencseCJ

Institution

Syracuse University

Degrees

Oates of

received

de~re,es

S . S. Educat1on_~1~9~5...
L_ _

Honors and awards: List below all scholarships, fellowships, honorary degrees. mmtary medals. honorary society
memberships. and any other special recognitions for outstano1ne ser"i1ce or achievement.

Yorven In !i.anag e:nenc Award - 1990

Cov . John Davis Lod~e Award for Oucscandire- Pub l ic Ser1tce
felloY - Institute of Polit i cs Ke:inedv Schoo i of Gover~je:'lt
Harvard Un i versity - l 987

Li bert y Bell ,\fJard - Outstandiniz ?ublic Serv i ce
.,;escporc aar Assoc . - l 9SS
700 Ten L•~1slaco r s oi che 'i ear , arcfor d Courant
Y'..:CA S.Jlute to \.Jomen Award -

19 6 5

l '? 8 3

Outstanding freshman te~1slator Connecu..cut ~agaz tne

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t ~;:

l ~C?Q

52
Memberships:

List below all membershios and oH,ces held in orofeuionat, fraternal, business. scholarly,
civic, charitable and other organizations.

Orr1111ution

Women's Campaign School of

f~l:c"~o~-~~~fL:

Land

Brd of Directors

1994
1993-1994 Resign•d

Advisory Board

Multipl• Sclarosis Society
Brd of Directors
E1.ve fovn Fouodat1oo
Brd of Trustees
Newington Children's Hospital Corpora tor
Le.ague of women Voters ot ;Jestporc President
Lea~u• of Women Voce.rs of CT Brd of Directors
fa1.rf1.eld County Coop Foundation Grant Resource Panel
Sacred Heart University
President's Council
CLASE' Croup iiome .cor che Retarded
Oirec:or
Young Playvrights of Fairfield Countv Advisory Brd

1984-J 967
1982-1986
1986::J 289
1971-1972

1973- 1 975
1982-1989
1984-198/i
1984-1986

1983-1989

Employment record: Ust below all Positions held since college. inctudin& the title or descriotion of job, name of

em01oyment. location of work. and dates of inc:lus,ve emoloyment.
Senior Vice President

~akovsky & Co

Environmental Public Relations
245 Fifth Avenue, Sew vork ,X
Regional Administrator EPA
Region I
Jrt< aldg,, Sostoo
Television Commentator
WTNH-TV

El:a
Adjunct Lecturer
Fellow

6 /91

:M

Jl

s,-s:e,;; Nev i.rave"

/89

' /9 1
J (93

,.,,s8 - ' 1 /89
02/89 - 4/89
02/8S - '/98

("T

Kennedy School of Govern.men:

Institute of Politics

Harvard t' niversitx Ca:nbr~"'ve

:::u,

State Reoresentative CT House of Repre~en~ac:ves
·
The Cao1col :-lar; .... g-g , .,.
Wr1ghc-Paccerson Air Force Base
Sec :-etary
Oavcon 1 Ohio
Quincy Public School
Teacher
Quincv. !-'.A

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OJ /81 - < /82
1 07ft 0

1 096

/51 - ., '54

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53
Government
experience:

list any experience in or direct association with Federal. State. or local governments, includ1n1 any advisory. consultat1ve, honorary or other pa,t•time service or p0s1tions.

United States:

EPA • 10/89 - 1/93

Natl. Advison Council on Adult Education - 1987 - 1988
Connecticut: Board ot D1rectors - Connecticut Development XUthUtltt
2/93 - 4/94
House of RepreseDtatives - (976 - [986
Coastal Area !iana;e.ment Advisory Board 1974 - 1976
Westport:

Represencaciv• Tovn Heecin; - 1975 - 1976
Plannin; 6 Zoning Commission - 1972 - 1975

PubliShed
writings:

List the titles, publishers and dates of books. articles. reports or other published materials
you have written.

llONE

Political
affiliations

and activities:

List all memberships and otf,ces held in and services re"oere~ to aLl Political part ies or

elect,on comm,nees curing the last 10 years
Republican Candidate ior Governor - l986
St.1r.e Represenc.1c1ve l36ch District - l9i6 - t986
Finance Commit:.ee :le'J . Jo Fuchs - 1968. ~990 & 199 2
Deleg.1t;e i;ong . Chris~ooher Shavs Con\'ention - 1968
Deleg.1ce to Republican Sta:e Conventions - 1930, 32. 8!. & 36
::>elegate to Republical'. ~:a: 1onai Conve:-ic!.ons - 1980 and !984
Republic.an \riomen of \.iescporc 197: - 199~

-----------------

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54
PolitiCAI
contnbutions:

ltemite all p0litic1l contributions of S500 or more to any i!tdivtdual, camoaicn orpniu,
lion. p0lit1C1I party, political action committtt or similar entity durtng the last eict,t
years and identify the specific amounts, dates, and names of the recipients.
·
The onlx

sup1trn to wbfcb I

have 11ven nnre

campaign for Governor of che State of

rhea SS00 ts mv mm

Connc,ats:ut •o 1986

cootributed S26 , 000. to that campaign.

Qualifications:

State fully your Qualifications to serve in the Position to which you have been named.
(HtKII 11\ttt)

See At cached

Future employment
relataonsn1ps:

l. Indicate whether you will sever all connections with your present employer, business
firm. association or organization if you are confirmed by the Senate.

have severed all connections vich :y most recent employer.

2. As tar as can be toresHn. state whether you have any plans after comoleting govern,
ment service to resume emotoyment. affiliation or pracuce with your previous em,
ployer, business tirm. association or organization.
have no plans to resume emplovment •.titb my acevious ""'TliQloye"'

3. Has anybody made you a commitmenc to a job after you leave government?
No

4. Oo you exoect to ser\'e the full term tor which you have been appointed?

Yes, ! exoec ..

c,o se!·ve

the •n 1 ,

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55
4 Attached

Qualification ■

I believe that I would bring i■portant qualification• to the job of
Director of zz-I■ Bank. Th• Bau ha• taken on new initiative ■ in
Included in it■ aggr•••ive plan i• the
th• pa■ t two year■ •
development of relevant •nviroD11ental progr-■• Th• Bank ha• begun
to craft requlation• to be u■ e4 to a■■ur• that environ■ental
a ■pect ■ of zz-I ■ Bau tran ■ action• are given proper con■ i4eration.
They have al ■o co-itted to a -jor initiative to nurture and
expand their progr- for the ezport of Aaerican environ■ental
technoloqy.
Ky enviroD11ental credentials are right on target to •••t tho•• two
Por thr•• years I headed up th• BPA'• office in Region
challenge ■•
one (Mew Znglan4). I have comprehenaive Jtnovle4ge an4 appreciation
of federal enviroD11ental lava and UD4er■ tan4 the challenge ■ and
pre ■■ur•• that th••• rule• and regulations bring to the buain•••
The major task for th• Bank vill ba to balance th•
co-unity.
vital environ■ental ne•4• of the nation with the ■ tate4 goal of zzI■ Bank for job creation and export development.
sz-I■ Bank ha ■ ■a4e a very ■ trong co-itment to
broadening th• country'• export of enviroD11ental technologies.
Thia i• a market that has bean UDtappe4 for too long. A• a nation
we led th• vay in enviroD11ental lava and regulations. That reaped
an ezceptional array of important technologies. •• need to market
It is tha perfect marriage of job
tho•• technologies abroad.
creation and enviroD11ental protection.
Purther■ore,

Mot only do I UDdaratand and endorse the enviroD11ental agenda that
Zz-Im Bank has staked out tor itself, but I also have experience
vith development agencies. As a member of the Board of Directors
of the Connecticut Development Authority, I vorked directly on the
approval of loans, grants and guarantees. This is precisely the
type of program being handled by Ez-Im Bank.
Becauaa I have both environmental expertise and development
authority experience, I think that I am in a unique position to
bring a vida range of targeted qualifications to thia job.
Finally, I believe that I bring an added asset because of my 10
of elected experience in atata government and 6 year• in
I am able to talc• a look at vhat federal
local goverD11ant.
aqenci•• are proposing and UDdarstand the connection to and impacts
on local and state goverD11ant, and I can anticipata the likely
private aeotor response.

year■

Altogether th••• qualification• ~ill ••rv• me well a ■ I •••k to
••rv• the public through my participation on the Board of Ez-Im
Bank.

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56
Potential conflicts
of interest:

l. Describe any financial arrangements or deferred compensation agreements or other
continuing de.ahngs with business associates. clients or customers who will be affected by policies which you will influence in the position to which you h&ve been

nominated.

I have no financial arrangements or deferred campeosat1nae
agreements With business associates. clients or customers vhic;h
would influence me ia. the position co which I have been nominated

2. List any investments. obligations. liabilities. or other relationships which might involve
potential con!licts of interest with tl'le pos1t1on to which you have been nominated.

Neither my husband or I have invesu1ents chat we believe •Jould

involve a potential conflict of interest.

3. Describe any business relationship, dealing or financial transaction (other than tax•
pay,ng) whi.:h you have had during the last 10 years with the ~ederal Government,
wnether tor yourulf. on behalf cf a client. or acting as an agent. that m,grit in any
way constitute or result ,n a possible conflict of interest with the position to wnfCh you
have been nominated.
None

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57
4. List any lobbying act1v1ty during !ht past 10 ye•rs ,n wtuch you have engaged for the
puroose ot directly or 1no1tectly 1nt1uer,c,nc the p,suge. defeat or moc:hhcat1on of

any leg,s1auon at tf'le n;.tiQt'lal level of government or aNec:ting the adm1n1strat1on and
e•ecutton of national law or public POhcy.
None

S. E1ola1n now y0u will resolve any pctenual conflict ol interest tnat may be d1sc10se:l by

your resoonses to the aocr.-e items.

have alreadv taken steps :o sell the stocks ·Jbich I own char zf3ht
have !)resented a .:onflict.

(Molten '.'iet.11 7echnolo;;y ,) Soe,;ng ,.onpaoy)

Civil. cc.m,nal and

1nvest1gatory
actions:

l. Give

the full dc!a1ls ot any c1v,I or cr1m,nal proceeding 1n which yJu were a defendant
or any ,nau1ry or ,nvest1~a1ion by a Federal. State. or local agency in wn,ch you were
the sub1ec: ct the inquiry o, 1nvest1gat10n.

in 1992 a dis~runcled retired e:uolo\·ee 31 le&ed ,.a '"'!O rbar a reor~u,tzation

..:one .:..,c po]; e • ~,· --sa,eA& :he
ri~rga.niz.1c1on was the resul:. oi a.l::iosc :hree :,ears of analvsis ar.d
re ► 'ec .. ed 7 '.' -onaarM fee ~::c .• eed ~o .. ,a..... JUiitdbt ....... , :.n :eaerai ;overn:nenc.
le 1s ::iy unaerscanciin~ that :~e l!nsuing :-eor2a .. ,·1t~on 1as ieer H;i:ii.eveci
ana ~s 'JO?'it.lng. ~o ;,olicica.i -lP?OJ.:i.t:::er.cs ·.·ere involved and the renq;an• zac• ,n =
·••~.,s ?e;1011 : xxc:1 _.. e oc.tet .. eqtons .. n cne :iac1on.
{A .;:opy oi the GAO :-epor" is ec ta,r?e,.;
thac ! imole:":te~ced at ite2ion I/E:?A i.;as

2. G,ve tf\e full dcta,ls ot any proce~,ng. 1nou,,..., or ,n,..est1gat1on b~ any orotess,onal
associat,on ,nc1ua,n~ anv oar ass.x1at1on ,n wn,c~ you were ti"!! suo,ect 01 the oroceeo,ng. inou,ry or 1nvcst,gat1on
Sone

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58

GAO

United Statea
General Accoantlng Office
WaahlDC'IOn, D.C. 20548
General Government Dh1alon

RECEIVED

MAY 09 1994

May 5, 1994
Ms. Nancy Grantham
Assistant to the Regional Administrator
Environmental Protection Agency
JFK Federal Building
Boston, Massachusetts 02203
Dear Ms. ~rantham:

In r~sponse to your inquiry regarding our report on conversions
and appointments during- the 1992 presidential transition, this
is a summary of what we found regarding an allegation in the
Environmental Protection Agency's Region I, The allegation was
as follows:
The Regional Administrator, Region I is going ahead with a
reorganization. The reorganization will demote the role
of the Office of Environmental Review by making it part
of the Public Relations Office.
Our objective in reviewing allegations was to determine if the
events underlying the allegations had occurred. If the events
had occurred and the allegations involved a reorganization, we
tried to determine if the reorganization had been planned or
took place before the presidential transition period and
whether new positions were being created for political
appointees.
The Director, Management and Organization Division, told us
that.the reorganization was being considered, but did not agree
that the reorganization would demote the role of the Office of
Environmental Review. The Chief, Agency Management Analysis
Branch, added that the idea for the reorganizatio~ · resulted
from a 1991 review and was more formally formulated in the fall
of 1992. While the plan was officially submitted for approval,
the Environmental Protection Agency had not approved it as of
June 1993 . The Chief told us that the reorganization involved
25 positions, of which 22 would involve moving people

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59
internally; 3 would be tilled by new hires. The Chief said
that, to his knowledge, no political appointees were involved
in this reorganization.
I hope this information is helpful.
Sinc~rP.ly yours,

James J. Grace

Senior Evaluator, Federal Human
Resour~e Management Issues

2

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60
RESPONSE TO WRITTEN QUESTIONS OF SENATOR RIEGLE
FROM JANET LOUISE YELLEN

Dear Mr. Chairman:
I am pleased to provide my responses to the additional questions
which you forwarded to me following my nomination hearing before
the Committee.
I would like to express my appreciation to you and the other
Members of the Committee and to Committee staff for the courtesies extended to me, and I look forward to working with the Committee.
Sincerely,
Janet L. Yellen
Q.t. European employment rates are currently averaging about
twice the U.S. rate and only part of that difference is cyclical. Their
rates used to be much lower than ours. What, in your view, explains that shift, and are there any lessons there for us on how to
reduce our average unemployment rates?
Al. Over the last decade, unemployment rates generally have been
higher in the European Community than the United States, even
after accounting for differences in macroeconomic conditions. This
enormous increase in unemployment in the European Community
is a puzzle, especially in light of the fact that other OECD countries (Austria, Switzerland, the Nordic countries, and Japan), have
not experienced rises in unemployment of comparable magnitude.
Several factors, rather than any single cause, appear to have combined to produce this result.
One factor at work may be the failure of European workers' real
wage targets adequately to adjust downward in the face of negative
supply shocks, adverse movements in Europe's terms of trade,
lower trend productivity growth, and high unemployment. In contrast, the more corporatist economies with centralized wage bargaining, such as Austria and the Nordic countries, fared better
with respect to unemployment because their labor market structures exhibit less real wage rigidity. The United States labor market is also characterized by relatively little real wage rigidity, albeit for different reasons. In the European Community, the failure
of real wages to fall meant that profit margins were squeezed and
investment declined substantially, resulting in a long term "capital
cum jobs shortage." For example, by 1989, with European Community unemployment close to 10 percent, capacity utilization had
reached levels associated with previous cyclical peaks.
A second factor is that, in Europe, workers are less mobile and
generally are influenced by stronger work disincentives than in the
United States; these include more generous unemployment benefit
programs, so that similar economic shocks lead to longer spells of
unemployment in Europe. Some have hypothesized that the superior unemployment performance of Austria and the Nordic countries derives from the fact that unemployment benefits are of relatively short duration and retraining and relocation programs attempt actively to match workers with jobs.
A third factor is that European firms often face restrictions that,
while intending to protect workers, produce costly disincentives to

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61

hiring and limit the number of hours that individuals can work.
These restrictions limit the growth of employment and slow the recovery of labor markets to adverse shocks.
Finally, there is evidence that the "natural rate of unemployment" tends to rise over time following a prolon~ed period of unemployment. This occurs for two reasons: Once individuals remain unemployed for some time, their skills begin to atrophy, making them
less employable in the future, diminishing their incentives to
search, and eventually causin_g them to withdraw from the effective
labor force. In the European Community, such long-term unemployment has increased dramatically. Once individuals are out of work,
their concerns may be ignored in union bargaining by those who retain their jobs. In this way, tight monetary and fiscal policies designed to lower inflation may have contributed to a persistent problem of high structural unemployment.
There is a good deal that the United States can learn from the
experience of the European countries. The United States might
benefit from improved school-to-work transition programs, worker
retraining programs, and other incentives to facilitate job transitions. Further, the United States should be aware of the potentially
costly side effects of programs which reduce labor market flexibility-such as longer or more generous unemployment benefits, higher minimum wages, or limitations on hiring and firing. A third
moral is that policies-such as deficit reduction-which promote
capital accumulation, also result in job creation and reduced structural unemployment over the longer term. Low rates of investment
in Europe exacerbated the unemployment problem. A final moral
of the European experience is that unemployment, once it is allowed to rise, may be highly persistent and difficult to reduce, especially if workers experiencing long spells of joblessness effectively
withdraw from the labor market. This suggests the need to avoid
periods of prolonged unemployment.
Q.2. Current law prohibits or greatly inhibits some financial service activities at bank holding companies including securities underwriting and insurance brokerage. What is your view about relaxing
existing constraints?
A.2. It seems to me that the question of expanded powers for banking organizations requires the balancing of risks and benefits, i.e.,
increased risk of insolvency, misuse of deposit insurance, and the
potential for conflicts of interest, on the one hand, and the public
benefits of increased competition, resulting in lower prices and expanded options, as well as a stronger banking system, on the other.
For securities underwriting, my impression is that the risks are
manageable, especially if capital positions are strong, and the potential benefits-in better terms for corporations, greater access to
capital markets for regional firms, and greater diversification and
efficiency for banking organizations-are apt to exceed the costs.
My concern is that banks do not misuse the safety net, either to
be unfair competitors or to take excessive risk, and that safeguards
are' established to limit the potential for conflicts of interest. On
balance, I believe that there is a reasonably strong case for allowing bank holding companies to engage in underwriting through
separate subsidiaries, with high capital requirements, diligent suDigitized by

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62

pervision, and reasonable firewalls. I do, however, want to have the
opportunity to study this issue in greater depth before finalizing a
position.
With respect to insurance brokerage, I am inclined to support
this activity for banking organizations. However, recent experience
suggests that sales practices in all agency transactions need to be
carefully managed at banks and nonbanks in order to avoid conflicts of interest and potential customer confusion. But, insurance
sales by banks, with proper safeguards, seem clearly likely to benefit the public in terms of rates and convenience with virtually no
additional risk to banks and the safety net.
Q.3. Current law places a fairly sharp divide between commerce
and banking. Some have proposed removing that divide to permit
holding companies that contain both banking and nonfinancial
business affiliates. What is your view on that?
A.3. The divide between banking and commerce is motivated by a
number of concerns. Permitting the affiliation of banks and nonfinancial companies may create incentives that affect the impartiality of the bank's credit judgment to the potential detriment of the
bank, unwisely create more firms considered "too big to fail" with
potential risks to the Government safety net, provide the nonfinancial company with an unfair competitive advantage over its rivals by affectin~ the willingness of the bank to make credit available to those nvals, and lead to significant concentrations of resources and economic power. On the other hand, several benefits
might accrue from permitting the inte~ation of banking and commerce. For example, enabling banks or bank holding companies to
take significant equity stakes in nonfinancial corporations could, in
theory, promote the formation of mutually advantageous long-term
relationships between banks and nonfinancial borrowers, with the
benefits from reduced information costs accruing both to banks and
to corporations-in the form of a lower effective cost of capital.
Banks with equity stakes in companies might also have greater incentives to make good financing decisions. Unfortunately, the empirical evidence which is needed to assess either the costs or alleged benefits is limited, although the experience of other countries
may be relevant.
As I noted in response to question 2, the concerns that led to the
divide between banking and commerce are more easily addressed
in areas that are financial in nature, and the benefits of statutory
chanJ:e in the financial area are clearer, both for the health of the
banking system and for the consumer. Because the tradition of separation of banking and nonfinancial companies is so strong in this
country and each diminishment of this divide seems difficult to reverse, I believe, however, that permitting banks to affiliate with
nonfinancial businesses is a step that we must carefully explore before we take it. I am not opposed, in principle, to exploring this
matter, but I do not believe that we are, as of now, prepared for
this step.
Q.4.A. Recent studies indicate that minority borrowers are 60 percent more likely to be rejected for home mortgage loans than white
borrowers. Evidence suggests that Federal efforts to enforce the
Fair Housing Act and Equal Credit Opportunity Act have been

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minimal. Do you believe the Fed has done an adequate job in enforcing fair lending laws?
A.4.A. I am aware that some people consider the Fed insensitive
in the area of enforcement of the fair lending laws. Because I am
new to the Fed, I am not yet certain whether or not this perception
is accurate. Certainly, the most important piece of research documenting discrimination is an internal study undertaken by the
Federal Reserve Bank of Boston. I also know that the Fed has upgraded its examination procedures to improve its detection of discrimination. In particular, the System has developed a computerized statistical model, patterned on the Boston Fed study, which is
used by examiners to detect discrimination in the course of bank
examinations. I also understand that the Federal Reserve has
made major efforts to educate the banking industry concerning
their responsibilities in the fair lending area.
Q.4.B. What steps would you take to improve the Fed's record in
this area?
A.4.B. If I am confirmed, I pledge to work to ensure that the Fed
vigorously enforces the fair lending laws. I am strongly committed
to equal credit opportunity for all Americans regardless of race or
gender. Racial or gender discrimination is morally abhorrent, as
well as a violation of the law. Without equal access to credit, Americans are not able fully to participate in the American economy and
to realize the American dream. Sometimes discrimination is overt
and intended; sometimes it is covert and even unintended, but,
whatever the motive, and whether intended or not, it cannot be tolerated. One concrete step that can be taken is to give careful consideration to the use of testing-applied selectively to institutions
with suspected problems-to detect discrimination in the pre-application stage of lending. I am also inclined to encourage banks to
engage in self-testing as a way to detect discrimination which
leaves no paper trail. In this regard, however, there is a potential
Catch-22 situation which may need to be addressed, because banks
now risk having the evidence that they collect through such voluntary self-tests used by the regulatory agencies or the Justice Department in an enforcement action. Though the agencies have recently taken steps to mitigate this problem, it remains to be seen
if these actions will be enough.
RESPONSE TO WRITfEN QUESTIONS OF SENATOR RIEGLE
FROM JULIE D. BELAGA

Q.1.A. What do you see as the most promising markets for U.S. environmental goods and services?
A.1.A. Demand for environmental goods and services is essentially
driven by governments, either directly through building or upgrading infrastructure services or indirectly through creating, implementing, and enforcing environmental laws and regulations. OECD
countries will probably continue to account for the bulk of worldwide demand for environmental goods and services in the near
term. Looking longer term, developing countries and particularly
emerging markets will begin to account for a greater share of the
demand for these products and services.

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The TPCC Environmental Trade Working Group has identified
five markets/regions as the best prospects for U.S. companies selling environmental technologies: Mexico; Argentina and Chile;
Central Europe, including Poland and the Czech Republic; South
Korea; and the China Economic Area, including China, Hong Kong,
and Taiwan.
Q.1.B. How would you specifically help U.S. exporters of environmental goods and services compete effectively in these markets?
A.1.B. The U.S. Government, as a whole, has tremendous resources
to help these companies and the TPCC Environmental Trade Working Group has developed a strategy to do just that. Exim Bank's
role, of course, is limited to providing financing. In April, Exim
Bank announced a new Environmental Exports Program designed
to make it even easier for environmental exporters to access Exim
Bank financing. My job will be to ensure that the details of that
initiative are widely communicated to the environmental industry
here in the U.S. and to potential foreign buyers overseas. In addition, I hope to work with Exim Bank's lending staff to design creative, new financing schemes for environmental exporters if situations arise where our current programs don't adequately meet their
needs.
Q.2. One of the goals of the TPCC is to achieve short-term growth
of U.S. environmental exports through targeted advocacy pro~ams.
Could you describe what you believe should be Exim Bank s role
in these advocacy programs?
A.2. When Government-supported export financing is a critical factor in an exporter winning a contract, Exim Bank should be there
to support them. I know that Chairman Brody is committed to responding quickly to requests from environmental exporters and,
when necessary, to developing creative ways within the limits of
the OECD arrangements for Exim Bank to support U.S. bidders.
The Bank is planning a major outreach program to the environmental industry. These companies need to know that Exim Bank
is serious about helping them export their technologies and services
and that Exim Bank can assist them in getting loans and insurance commitments quickly.
Q.3.A. Another goal of the TPCC is for longer-term growth of U.S.
environmental exports through market development that targets
exports to developing countries and middle-income markets. What
do you see are the specific needs of these markets?
A.3.A. Different countries have different environmental needs. The
TPCC Environmental Trade Working Group is drafting specific action plans for the top five environmental technology markets which
will specifically identify each market's needs, the best opportunities
in those markets, and how best to focus U.S. Government resources. In general, however, it is clear that emerging market countries are focusing on: (1) improving their water and wastewater infrastructure; (2) treating solid and hazardous waste; and (3) reducing toxic air emissions. The fast-growing power needs in emerging
markets also could present opportunities for sales of alternative energy systems and cleaner power projects.

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Q.8.B. What new Exim Bank initiatives are needed to help U.S.
businesses penetrate these emerging markets?
A.8.B. Exim Bank has recently announced a new Environmental
Export Program which applies to loans, guarantees, and insurance.
It is now important for Exim Bank to aggressively market and implement that new program. AB the Bank goes through that process,
1t will also be important to closely monitor whether other new initiatives are needed to more effectively meet the needs of environmental exporters.
RESPONSE TO WRITI'EN QUESTIONS OF SENATOR MURRAY
FROM JULIE D. BELAGA

Q.t. The State of Washington is brimming. with exporters eager to

trade with Vietnam. What issues must be addressed and what
steps must be taken before the Exim Bank will be able to provide
financing for U.S. exports to Vietnam?
A.1. Before Exim Bank can provide any financing support for U.S.
export sales to the Republic of Vietnam, all statutory prohibitions
have to be removed. Restrictive measures are contained in the following statutory legislation. Under 2(bX2)(a) of Exim Bank's charter, Exim Bank is prohibited from doing business in any MarxistLeninist country, or with any agency or national thereof. Vietnam
is one of the countries included. Exim Bank may do business in a
Marxist-Leninist country if the President determines it is in the
national interest. In addition, under the Foreign Operations and
Related Programs Appropriations Act, Exim Bank is prohibited
from supporting exports to certain countries, including Vietnam.
Finally, Exim Bank is precluded from providin~ any support for
U.S. exports under Title IV of the Trade Act, which prohil:iits Exim
Bank from doing business in nonmarket economy countries. This
provision is subject to certain Presidential waivers and determinations regarding assurance on freedom of emigration.
If all legal restrictions are removed, Exim Bank will then tum
to the Inter-agency Country Risk Assessment S_ystem ("ICRAS"),
which is chaired by the Office of Management and Budget ("OMB''),
for public and private sector risk ratings. These risk ratings determine the subsidy level which Exim Bank-and all U.S. agenciesmust charge for loans, guarantees, and insurance in a country. In
the past, Exim Bank's Board of Directors has used the same ICRAS
rating to determine the level, if any, of Exim Bank support and the
appropriate fees. This same procedure and practice will likely be
followed in the case of Vietnam.

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No Great Crisis in the Dollar's Drop
. ·"

By PAUL JRUGMAN

./f-~(

HERE'S something about international trade
a nd finance that makes people lose all sense
al proportion. Only a lew weeks ago, the
Ame rican press proclaimed that globalization had
slain the dragon al inllation. Pundits castigated
the Fede ral Rese rve for rai sing interest rates to
s low the American recovery. Now that our nation
is open to world tra de, they sai d, economic expan -

T

,.1·, .
I > t~--the

sion ca nnot drive up prices.

•. • ,..,.•- ) . ~ 'n
.
•c~,,,
f,
.'tf,.•~tt ...... r •~,~

Then the dolla r began sliding on world markets
- a nd sudd enly the press was filled with extreme
st atements or the opposite kind : Bill Clinton Is
another Jimm y Ca rter , 1994 ls 1978, and a plunging

do lla r will brm g soa ring infla tion and / or abort the
recc,vcry.

0

cgN.
ro

0.

u

'<

0

0

a

~

Poul Krugman is a professor' a/ economics al
Stanford Un,versily. He is the oulhor of several
books, mos1 recenlly "Peddling Prosperlly: Economic Sense and Nonsense in the Age of Diminished l:.:xpeclotions," published by W. W. Norton &
Company in March .
·

.o·v

1001--· - - , - - - - - , , , , - , - -,..::,:_
;.::,
50

Lei's calm down and look ar this dollar drama
with a lilllc more pcrspcclivc. Reports of lhe dcalh

al inllatton were greatly exaucrated. Similarly,
the dollar's recent slide is unlikely to trigger
serious inflalion or provoke a recession. or 10 lasl
long enough lo do so.
·
n,at is, unless lhe Federal Reserve loses its
nerve. lbc main - though not the only - thing we
hove to !ear Ill !ear Itself.
Why isn't the dollar's slide to date cause for
con~ern?'For one thing, the dollar has not !alien all
that lar. Over the past year, It has declined only
about 10 percent against the yen, and less than 7
percent against the mark. For another, the dollar
has not been w_
eak on all !rants; while 11 slumped
against Japan and Germany, other Important
trading partners like Canada and Mexico have
actually devalued against the dollar.
All told, in the last year the dollar has fallen no
more lhan 3 percent on average against the cur•

dollar,•
r-end figures
d Frlday'6

!-• ·
'

'.
.,,,

.

·, New. York close.

ri

!:

1

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'.ct··•--~

\

1.5 ~

l .J ,.-

0 1 ,_ 1. , 1 1 1 J 1 _1ii..r ,•....'
1.0 ~ 1 1 , .. _, , .' . ' 1 _i ' 1 . 1
•so · . t , •as .,· .·
'90 :~Y~'. '94 · •so
· ·. •as i..1... ~ '90
~

-

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'94

•

Soww,: lnt•'"ftlontl Monft•ry Fvnd y,.a,t,ooh; Bloomb•tj ~ I Mar1c•II

..

:

.

.;,,
The Nt., Yo1k Tlmr 1

rencles of America's trading partners.
Compare these currency movements wl lh those
between 1985 and 1987. Then, the dollar !ell !ram.
258 yen to 129 yen and !ram 3.3 marks to 1.6 marks,
and Its average exchange rate !ell more than 30
percent. The great dollar slump of those years was
a good IQ limes as big as this one - yet even that
spectacular slide was not enough to derail the
economic recovery then In progress.
And, alter all, why should a declining dollar
create economic problems? There Is only one ·.
reason : A !ailing dollar can leed lnllatlon, a~d lead
the Federal Reserve to raise Interest rates. But
this 6olltary reason Is also a slim one; even large
changes In the dollar's value will allect inflation
only modestly. Despite the rhetoric al globalization, 1rade just Isn't that lmportanl 10 lhe Amerl-

0)
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67

can economy. We spend only 11 percent of our:
income on impons, which means a 10 percent
decline in the dollar will rai.le domesllc prices by
about I percenL
:
To justify grave worries about the dollar. for-1
eign excllange markets must go Into a free fallj

I

~~!~':e~
':~rtom~;i'to~ : - ~ •::
thlS likely?
• !
HE a - r 11 no. One can never rule out!'
manias and P.elliCS In financial markets. ol•
course. but lite intemallonal markets containl
many level-beaded investors who are prepared tO!
ride out a shon-run ·storm for a long-run sure
thing.
l
And a dollar that weak would be a sure· thing.•
Alter al~ in the long run exdtange rates strongly
affect nations" ability to sell goods and services to
Oilier countries. If the financial markets make the
dollar so inexpensive that the United States has a
huge cost advantage in just about everything, then
sooner or later market realities will force it,;
dollar back up again.
;
Indeed. most peovle who do cost and price
comparisons think the United States ii in a very
strong posiUon even at current rates. A mucb
weaker dollar would almost surely bring In Investors willing to bet on eventual caphal gains when .
the currency recovers. In turn. the innow of capital from these investors would prevent the dollar
.
from tailing funher.
·So. is there anything to be worried about? Yes.
For while the markets will not abon the recovery,
the policy makers mighL
,
The clear and present danger is that the Federal
Reserve will overreact to the declining dollar.
raising interest rates to stabilize our currency at
the expense of the domestic economy. Most indications are that the Fed knows better - that Ameri•

T

ca's cenrral ~ankers, unlike their counterpans in

many other countries, understand that the exchange rate is only a statishc, not a symbol of
national honor and virility.

·

But that view. sensible though it is. may be hard
to maintain if the dollar should take another sharp
plunge..
•

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68
C10 5DD4\'. kl\' 3, I 994

AN

INDEPENDENT NEWSPAPER

It~ the ~n That~ Out of Control
S AN EXAMPLE of political cynicism, the
new Japanese government is breathtaking.
It's cobbled together from the opposites of
right and left-the most obdurate elements of the
collapsing Liberal Democratic (that is, conservative)
Party and their longtime adver..aries the Socialists.
The incoming prime minister, Tomiichi Murayama,
has spent his entire career in the opposition support•
ing pacifism, neutralism and other ideas that his
CUrTent partners had always derided as neither
realistic nor safe. Some Japanese say that the people
in the new government have nothing in common
beyond a yearning for power, but that's not quite
true. There's one other thing-hostility to the
electoral reforms enacted earlier this year.
Both of these long-established parties, Liberal
Democrats and Socialists, know that Japanese society is•changing in ways that do not favor them. The
reforms, and particularly the sweeping redistrict·
ing that they impose, would shift influence to
voters who are younger, better educated, less
tolerant of :-olitical corruption and perhaps less
content with Japan's constrained standard of living.
To call this government instable is to put it
mildly. It arrives at a time when the country's
economy is already under great strain, and the
absence of firm leadership may prove expensive.
The rapid ri!e of the yen's exchange rate is not a
sign of health, but precisely the opposite.

A

Americans have been wondering why their own
seems to be falling at a time when the
economy here is performing well. Now it's beginning
to be clear that the dollar isn't falling. It's down a
little against some C111Tencies, up a little against
others, and trading in normal ranges against all but·
one-Japan's. It's the yen that's out of control.
Japan is running a big trade surplus that can
continue only as long as it can balance that
surplus with an outflow of capital-in effect,
lending its customers the money to keep buying.
For many reasons, most of them related to a long
recession and the fragile condition of the Japanese banking system, the outflow has dropped.
Tht: result is a yen shortage, and the yen's
exchange rate is rising. That threatens t., throw
Japan back into a further and deeper recession,
because the high exchange rate is making Japan's
exports expensive and uncompetitive.
It's a bad time to have a government entirely
preoccupied with parliamentary infighting. Japan's friends, of whom there are many in this
country, must hope that the Murayama government proves to be only a brief transition to
something sturdier and better able to make the
sharp changes in policy that Japan will need in the
gathering economic emergency.
aurency

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69

Treasury Official
Plays Down Pull
Of Inflation Fear
Undersecretary Contends
Other Factors Burden
The Dollar Even More
ECONOMY
By LUCINDA

HARPER

Staff R~porr~r of Tn,: WALL STnF:>:T Juuns.-L

. WASHINGTON-The Treasury's top in·
ternational official tried to quell the idea
that fears of future price increases are
behind the dollar's unwelcome weakness,
and he reiterated the administration's
hopes that the currency will strengthen.
"The cause of recovery in the United
States and global recovery would be better
served ... by a stronger dollar." Treasury
Undersecretary Lawrence Summers said.
"A decline in the dollar has potentially
adverse consequences for confidence. It
has potentially adverse consequences for
long-term investment. It has potentially
adverse consequences for the dollar's cen·
tral role in the monetary system."
Mr. Summers's words, coupled with
jawboning by German officials. caused the
dollar to rise sharply against the mark and
by a lesser amount against the yen. The
dollar's gains calmed the bond market.
Stocks rose. (See article on page Cll.
In contrast to comments earlier this
week by Federal Reserve Chairman Alan
Greenspan. Mr. Summers told the Senate
Banking Committee: "Of the various fac·
tors that have been relevant to currency
fluctuations. I would not assign a high
weight to inflation expectations." Appear·
ing before the same committee on Wednes·
day, Mr. Greenspan described the weak
dollar as a sign that inflationary expecta·
lions in financial markets are rising.
Mr. Summers blamed the drop in the
dollar on improved prospects of recovery in
Europe, which have strengthened the Ger·
man mark, and the concern that the new
government in Japan may not be able to
deal with its current-account surplus. "The

dollar has in fact been stable when you look
at its relationship with the currencies of all
major trading partners," Mr. Summers
added: the U.S. dollar has been particu·
larly strong against the canadian cur·
rency.
The Treasury official blamed rising
credit demands, rather than inflation ex·
pectations, for the increase in long-term
bond yields around the world.
Both Mr. Summers and his boss, Trea·
sury Secretary Uoyd Bentsen, yesterday
voiced skepticism about a plan floated by
an independent commission headed .by
fon'ner Fed Chainnan Paul Volcker that
would re-establish a system of tighter ex·
change-rate bands, with the International
Monetary Fund guarding the stability of
the system.
"In theory it's a good idea. In practice,
it's much more difficult than it first might
appear," Mr. Bentsen said at a State
Department conference. Senior officials
from Gennany and Japan similarly criti·
cized the proposal.
Mr. Summers yesterday pointed out
that while currency fluctuations can be an
irritation in the global economy. they
aren't as extreme as they used to be.
Charts of dollar moves in the mid· 19805
"look like the Himalayas," he said, while
movements in recent years "resemble the
rolling hills of Yorkshire." The Treasury
disclosed in a report to Congress yesterday
that the U.S. government used about S2.7
billion of its reserves of marks and yen
in an attempt to boost the dollar in April
and June.
Mr. Summers also said yesterday that
the Treasury has concluded that China is
"significantly" understating its exports
and is still manipulating its foreign-ex·
change systems. Mr. Summers said the
administration will continue to negotiate
to get China to stop the manipulation. and
use leverage from negotiations at the
General Agreement of Tariffs and Trade.

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Robert J. Samuelson

The Yen: Japan's Reality Check
Sor:1eone will !Offleday •'rite t~ o!e-

fruff\1' bislory ol the sWVldle ol tlle
ctntury. FCX' now. wr must cantent

the bare facts. Dunng
the 1980s. Japanese insurance companies. bonJcs "1d COrl)Or2llOIIS bought
hundreds ol billions ol dollars oi ior01J111
stocks. bonds "1d real estate (olfice
blllldinP, hotels. resorts). On these in-

owvtva with

,,.,m,nu,

0

c6
~

N

i

~

the Japanese have sufftred
ac.uuophic la&sts. olten 50 percent or
mor•. What's astonishine. chcugh, is
Ch.11 the swmdle WIS mostly sdf.
nul.:ted. It wu mainly tagtt Japanese
buyrn-w noc fast•laUunc foreign
,;.iinmffi-who fed Che buyinc frenzy.
,\II this is now reltvant beca111e it
npL1ins the yen's dnmatic rise to •
po,;tw,r tugh ol 97 co lhe dollar. That is.
11 cook only 97 l"'" 10 buy • dollar.
,·,.npored w,th 145 in 1990. For most
rountm"S. J ris.inl curnncy Slgl'W~Je
•'""""' confxlenco. For Japan. it's )US(
111e <J11110511L It represents a harsh 1udg•
11""'1 by clobal money managers that
111e Japonese atUIOl corrtct their big
era« unbalance themselves and that
••~Y Lvge exchange ~te changts-ral51he pnce ol Japanese exports and
k,wrnng the pnce ol impons-wuJ do
JUI>.
lhe

••K

()

J.1p.1n·s massive ove~as investments
ntc'rcly postponed the 111evit2ble day ol

0

rn:k01ur.g. When Japan runs big trade
surpluses. it coilects huge JfflOWltS of
iocn>,."ll C'utTency (mostJy doUars) that 1t
,k-.-s11·1 r.ttd to buy unpons. Nonn,uJy,
thlj ..-ouid lead to a raptd nse ot the yen.
,L"' ~ll)fu.s dollan were sold on iore1gn
r:.d1.1nge rmricets to buy )·en. With
more ~tiers ol dollars than bu~·ers. :he
<lulbr dtoPo "1d the y•n nses. In Japan·s
,a.e, the ei!tct WIS ciclayed because SO

a(v

m:u,y ~~.!?.90! ~ •~·c!!"1'9 t? ~JY
foreign bonds and office bwldings. H.iv•
ing now sudtred imrn,nse losses on
these 111\'estmentJ, the Japanese ha,e
lost th.-.r •Pl)ttil~ for mort. So c~e
dollar drops and tr.e )'ffl nses.
There cs noclunc myirtrious about
this. Yet many Japanese cienJ iL '"('ntey)
yen has been
think that tl-.e
intentiooaily created by Wuhin"on:
Koo of NomuRICll3n1
wntes ,cor.ornist
ra Secuncts. "but in fact che rtaS<>O lies
in Japan's massive $130 billion lrade
sw-plus.• The dehwon p,rv>des J•pa-

wonr

Prune
nese SOC1ecy. Only Int ~linJSter Tomtichi Mun~ma bbmed
the United Statts for the high y•n.
rtports the Da~ Japan Di!tsl.
The J•panese are nght to fear th•

....,v
==·T h e ~ a,1;usu,,e1couid

economy
discourage imports. U tht cnde surplus
p!rslSlS-evffl Wlth lower nport voiume•-ll ccuJd lead to a ,icious circle ol
a nsing yen and worwninc economy.

not occur. A stagnant

Whott1·tr happ,ns. Japan·• present
predicament punctUres another myth:
Japanese farsightedn,ss. Throughout
the l 9SO.. Ammcans told themsel\'ts
that the Japanese took "the long ,,ew.·
They planned for the iuture. E.uctlv the
opposite has !>ttn truo: Ma.,,, ;,olic1ts.
by both business and go,emm,nt. h.:l,·e
bttn am;mngly !,1,ons,ghted. rn, Japadan!!ffS and
"""" ha,e ignored no< dtalt \\1th predJcc,bl<! proolem;.
Start 11,11h chose huge O\"rrstU invest•

others. Sine, 1992 Japans economy has
stagnated. Th•re .,. now fauu s,gns ol

mcnts themsel,·es.
!II the 1960s. :ht ,nc,s that
J.ac,a.nese companies ...·ere ~~ing for
U.S. oifice buildinp. hoctls ond r•sorts

a re,lV11 th.lt a NgCler yen couJd snuif
out. A hlgner yen means that Japan·•

w

rimg }-en: :hey are -.Tong to blame

e>pon tarr.:ncs (in dollars) buy (ewtr

yen. To cO\"er thttr costs. ex-por,:ers
have to n1se their O\·erseu pnces. Ust
week, (or e:(ample. Komatsu-a maker
of constn:cuon eqwpment-incrtastd
oxpcn pnces by nurly 5 percent. High•

er pnces :-eciuce Japanese eipons: .ind
thlS then d.Jmpens business mvestment.
Econorruc ~o-.,h suifers.
In theoi;·. ~'ul process should correct
itseU. A ;°J2ner yen mn:es unpons
che.1per 3nd :,ushes do"'TI pnces m Ja•
pan. This ,.could spur consumer spe,,ding and 111eroase unpc:u. As the trJde
SWl)lus drc;►.;. th! ~·en·s txchangc rate
staodu.es. T:le trouble 1s that Japan·s
rrwkets fr..;stnte unporu. and lower
pnces uen·, alwa)'S passed through to

E,,,,.

wore c - r e d 1n1lated. Since 11>,n,
collap;e oi cornmerci,1 real tst>:e
markets has made mailers much worse.
A survey by the CONUlting firm Konneth
Ltventhal & Co. reckons that Japanese

comp,1run have suiiered ~ on at
!east 40 p,rctnt ol their U.S. real tstate. On, Los Angelts hoctl is valued ot
about hall ,ts ; ll 0 million ?utch.:lse
pnce, rtpOns tht Los Ang•les Tunes.-~

ma,or LA. otfKe bwkiing m.1r ha,-e

dropped: tw~cturCU in ,·aiue.
Foreign stocks ar.d bonds wt-re abo
hazardous. True. l:.S. bond5 ;:,id hi!her
intertst rn:te-s th;tn J.:?panese bcn<U. But

any excess profits could tasdy ~ ,.,,,ped
out by e:<change race changes. This :s
what happened . Considtr a .>10.000
U.S. bond that cOSt 2 uullion )·tn 111 the
mid 1980s whtn the )'ffl wu 200 to the

~oO.ir. IA Japone.. im?<•nr

nett!:n'

Sl0.000 had to buy the dollars on for•
ei111 ecdlange marlcets for 2 nullion
yen.) Now the same bona-ti ;old "1d
con,·•ned back :o yen-wouid fetch
only about l rrJUion )'1!11 (Sl"' 100 )'ffll.
Somehow. lht Japanese had COfl'111Ced
themselvts that such exchange me
slults could noc h.:lppen.
Governmtnt policies ha,·e been equal•
Ir ffll!Ulghted. For y,m 11 tw bttn
obvious that Japan !lhould
imports by libenlainc 111 marltets. The
re;uon " net to sat,siy U.S. trade complarnts: 11 is to pttVffll • a,nstantly
rising )'ffl from devastatlllR Japan 's e.•
pon Uldustnes. Only by reduc"'I the
tr.Ide Wt1)his can Japan halt 1he ren·s
nse. ..\t UMts. Japanese onic:iau ha,·e
porroted ctus log,c. But the)• n.wtifl
pr.1crn:e-d it. Countless -ma:ket c,pemn~..
ond · hberahzauon· ?rocnms ha,·e orJy
unktred at the edces. The rtal obslxl•
i• a state ol mind. The Japanese ha,·,n·:
yet concluded that their unport•rts,.tant
and O\·errtgulated economy IS not II\
their own best interest.
Until the Japanese grasp this. ,co,
nonuc ond polit,cal pa~lys,s cowd fted
••ch othtr. Japan has had four pnme
llUIU$ten vt <he past }'"ftr. The pc,:Mwar
system of pchuca) pan1ts IS brt•kln!
do-.-n while the tconom\· fact"S u.:c-r«e·

~ce

d~nted pressw-es. P0Ju1c~ :'JrmoU
makes it hilrd for Jap;111 to unatn:ike
!'1ee,,:!ed e,;onom1e reforms. But e,conom•
. pol:tlC.31
1c uncena111ty irustrates
ty. Foreign excr.ange n1,;1rk~ts ret~~,:

.;r,1bili·J

tliese ten.ions. Whl!II people sa,. "tt•
dollar :s ralling.M?hev\·e gor 1, b.1ck•
ward. The problem,. not the dollu. It';
the

~-en..

-.1
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71

l\Iew Jobless
Claims Rise
WASHINGTON, July 21 (Reuters)
- The number of Americans filing
new claims for state jobless benefits
shot up last week, the Government
said today, but analysts shrugged off
the sharp gain as attributable to temporary layoffs in the auto industry.
The Labor Department said new
claims for state unemployment benefits in the week ended July 16 climbed
to 392,000 from a revised 365,000 the
prior week, putting them at the highest level since 408,000 in late January.
The number far exceeded Wall
Street economists' forecasts of
358,000 new claims in the week.
The average climbed to 363,500 in
the week ended July 16 from a revised 353,500 the prior week.

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72

Clinton Helps Raytheon
Win Brazilian Contract
$1.4 Billion Satellite Project Goes to U.S.
By Peter Behr
Wuhm8'00Puotsi.tfWriter

A personal appeal by President
Clinton to the government of Brazil
kelped Raytheon Co. yesterday win
a contract to develop a $1 .4 billion
environmental satellite project, beating out competition from a French
firm.
The Amazon Surveillance System,
or SIV AS, will be the largest of its
kind in the world, permitting advanced environmental rponitoring of
the Amazon region, an area half the
size of the contiguous United States,
according to Raytheon's vice president, Elizabeth Allen.
Commerce Secretarv Ronald H.
Brown said yesterday he had person-

ally lobbied for the Raytheon bid
during a recent trip to Brazil, "with
every Brazilian leader I met, from
the president down." He s.:id Clinton
followed up with a letter to Brazilian
leaders urging that Raytheon be
chosen.
It was the second major foreign
contract won by U .S companies following intervention by Clinton and
Brown. Earlier this year, U.S. aircraft manufacturers were chosen by
Saudi Arabia for a $6 billion jetliner
order.
In pushing hard for big contracts
for American firms, the Clinton administration argues that it is simply
matching the mercantilist tactics
that have been used for decades by
See BRAZIL. D5, Col 3

Presidential Appeal Helps
Raytheon Win Brazilian Bid
BRAZIL. From Dl
Europe and Japan. But in the process, the administration mav undercut its arguments against subsidies
to exporters.
A key to Raytheon's selection was
a financing commitment from the
U.S. Export-Import Bank, which
provides loan guarantees and credit
insurance on foreign projects that
create exports for U.S. firms, administration officials said. The French
bid was supported by France's export credit agency, COFACE, according to an Export-Import Bank
official.
Details of the Export-Import Bank
package were not available. The
subsidy cost to the bank would be in
the tens of millions of dollars, an oificial said.

The contract "signals the return
of the United States to the Br~zilian
scene in big economic projects," said
a Brazilian official. "It has been absent for many years."
From a U.S. perspective, Brazil
has lagged behind Mexico and other
Latin American countries in its efforts to control inflation, privatize
state-owned firms and admit foreign
investment, but there has been
progress on several areas of trade
friction recently.
The Raytheon contract will provide satellite and aircraft sensing, air
traffic control, weather radar and
monitoring systems and soitware.
Officials said the svstem would
permit surveillance ~f suspected
drug shipments by air in the region.

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