Saturday, January 15, 2011

Dallas Fed President Fisher - A Powerful and Honest Speech

Recently Dallas Fed President Fisher gave a very uplifting, motivational and honest assessment of the US economy and the role and limitations of fiscal and monetary policy.  It's a short read and I strongly recommend taking the time to read the speech.  Below are some excerpts, the cliff note version (my comments are in bold).  

The size of the problem facing the US economy.
"Over the years, their predecessors―Republicans and Democrats together―have dug a fiscal sinkhole so deep and so wide that, left unrepaired, it will swallow up the economic future of our children, our grandchildren and their children. They must now engineer a way out of that frightful predicament without thwarting the nascent economic recovery."

The Fed is monetizing the debt.
"...the FOMC collectively decided in November to temporarily undertake a program to purchase U.S. Treasuries that, when added to previous policy initiatives, roughly means we are purchasing the equivalent of all newly issued Treasury debt through June."
The Fed is enabling reckless and uncontrollable deficit spending.
"By this action, we have run the risk of being viewed as an accomplice to Congress’ fiscal nonfeasance. To avoid that perception, we must vigilantly protect the integrity of our delicate franchise."
"The entire FOMC knows the history and the ruinous fate that is meted out to countries whose central banks take to regularly monetizing government debt. Barring some unexpected shock to the economy or financial system, I think we have reached our limit."

Regarding job growth, the answer is with fiscal policy NOT monetary policy. 
"There is an underlying reason behind the graph placed before you that charts the disparate employment growth that has taken place in the 12 Federal Reserve districts over the past two decades.
That reason has nothing to do with monetary policy. It has everything to do with the taxation and fiscal and regulatory policies of the states. 
Similarly, the key to correcting the underperformance of the American economy and American job creation does not rest with the Federal Reserve. It is in the hands of those who make fiscal and regulatory policy."

Reminder to Congress about the recent election and the mandate the voters gave them.
"The people of the United States will judge them not by their rhetoric, not by their declarations, proclamations and statements of intent, but by whether their policies result in a people who are better off, have more work and are better paid.
The leaders of our government cannot attempt to talk their way out of the problem like their predecessors did. They must fix the problem. Now. If they fail to do so, then the election, for all its hoopla, will prove to have been nothing more than a case of putting old, rancid wine in new bottles."

The debt ceiling will be reached in approximately ten weeks, near the end of March.  A recent survey showed that 70% of Americans do not want it raised.  This will be the test of the resolve of Congress and the President to show if they are serious about addressing the structural and fiscal problems we face as a nation.  To simply say they will do what the bankers want them to do is group think and dangerous.  To say they will do the right thing although optimistic may be naive.  As a father of two little girls I hope they prove this time being naive and hopeful is right.

"We shall see if the new Congress will prove worthy of the power the American people have “loaned” them, and, together with the president, actually draw the spirits of fiscal reform and sanity from the “vasty deep” to at long last implement meaningful fiscal and regulatory policy that incentivizes private-sector job creation here at home while arresting the hemorrhaging of our Treasury. If they do, then more Americans will find work and be better off, better paid and freer to make their own decisions about the economy.
If they don’t, then woe to our children, their children and the American Dream."


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