Tags: Feds Fisher Warns of Monetary Excess

Robert Feinberg: Fed's Fisher Warns of Monetary Excess

By    |   Thursday, 11 Oct 2012 03:57 PM

CATO’s day-long program on the EU and U.S. financial crises closed with a speech by Richard Fisher, president of the Federal Reserve Bank of Dallas that promised to be the highlight of the day and did not disappoint. Although he said that he wouldn’t talk about monetary policy, he
practically “spilled his guts” on the subject.

Fisher began on a hopeful note by proposing Texas as a case study for comparison with those of polities discussed earlier, such as Switzerland, Germany, Canada, and even Estonia, that had grappled successfully with serious fiscal challenges. He compared the performance of Texas, which has increased the number of jobs by 50% since 1990, with those of other mega-states like California, New York, and Illinois, that have grown jobs by 10% or worse. Texas has also attracted immigrants from other states and from abroad during this time.

Editor's Note: The Final Turning Predicted for America. See Proof.

A bright future is in store for the U.S. economy according to Fisher, but to achieve this, it must overcome policy inertia that has left private-sector companies on the sidelines with trillions of dollars of cash that they will not deploy until they can be comfortable with the prospects for earning target returns on their investments. He warned that if the policymakers decide to postpone action on the fiscal cliff by six to nine months, private investors will do the same and delay their investment decisions.

Pivoting toward a discussion of monetary policy, Fisher referred to several surveys of private-sector decision makers showing that the biggest concern of the business community is lack of demand, not the availability of credit or the level of interest rates.

In contrast to an earlier speaker from Bank of America, who made the usual claims than the biggest U.S. banks are in much better shape than in 2008 and much better shape than their counterparts in the EU, Fisher quipped that on the balance sheets of this industry, “what was on the right wasn’t right, and what was on the left wasn’t left.”

Although Fisher praised the process of the FOMC as open and collegial, allowing every member to be heard, he blasted the extended accommodation as not the right response to the present circumstance and likely to lead to inflation as well as posing risk for the markets whenever it
is unwound. However, he was careful to say that the Dallas Fed has an elaborate process for monitoring evidence of inflation, and it still shows inflation as slightly under the target of 2%.

Fisher departed bravely and explicitly from the orthodox devotion to the Dual Mandate professed by Chairman Bernanke and nearly all Fed officials. He insisted that the Fed should concentrate on maintaining price stability, because once the Fed seeks to affect the level of employment, it is
only a small step from getting involved in the clearly political realm of fiscal policy.

In conclusion, Fisher illustrated his last point with a story about Sen. Chuck Schumer (D-NY), a high school classmate who he said hasn’t changed since then. Fisher recalled a recent hearing of the Senate Banking Committee at which Schumer admonished Chairman Bernanke to continue
supporting the economy because, “You’re the only game in town." Fisher said that if he had been in that chair, he would have tried to bring the significance of the lack of action on fiscal policy to Schumer by responding, “No, Senator, you’re the only game in town.”

Robert Feinberg served on the staff of the House Banking Committee for the 10 years that encompassed the savings-and-loan debacle and the beginning of its migration to the banking sector. Subsequently, he has consulted on issues related to the crisis for law firms, accounting firms, securities firms and trade associations.

Feinberg holds a BS.E. from the Wharton School and a J.D. from the Law School of the University of Pennsylvania. He has drafted dissenting views on landmark banking legislation, contributed to a financial blog and written hundreds of reports for clients to document the course of the financial crisis as it has unfolded over the past three decades.

Editor's Note: The Final Turning Predicted for America. See Proof.

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CATO's day-long program on the EU and U.S. financial crises closed with a speech by Richard Fisher, president of the Federal Reserve Bank of Dallas that promised to be the highlight of the day and did not disappoint.
Feds Fisher Warns of Monetary Excess
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2012-57-11
Thursday, 11 Oct 2012 03:57 PM
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