Governor Dick Fisher Sends Us Into Extra Innings

I was writing a post about Governor "Dick" Fisher's comments when I recieved the following email from Mike Shedlock at Whiskey and Gunpowder and decided I couldn't have critiqued his comments any better.  Governor "Dick" is quickly becoming my least-favorite Fed-head because I have no idea what he's going to say next and, since he's a "freshman" FOMC member, he seems to have little sway at the Fed to begin with --

Back on June 13 in "Stupid Comments by the Fed," we took a look at (and blasted) some comments made by Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, and a new member of the Federal Open Market Committee (FOMC). Here is a short recap:

1       "Where would the world be if Americans did not live out their proclivity to consume everything that looks good, feels good, sounds good, tastes good?"

2       "We provide a service for the rest of the world. If we were running a current account surplus or trade surplus, what would happen to economic growth worldwide and what would be the economic consequences? So I think we are doing our duty there."

Those quotes will likely go down in history as some of the dumbest things a Fed governor has ever said. This guy is really quite amazing, and he is seriously challenging Ben "Helicopter Drop" Bernanke for all-time stupid Fed comments.

Back in June, Fisher was talking baseball when he made these comments:

"I think we've room to tighten a little bit further but the U.S. central bank is in the eighth inning of its tightening cycle and entering the ninth, and usually final, inning this month."

Fisher was yapping again this week, on Tuesday, and given that the baseball playoffs recently started, I was hoping for some hot baseball tips. Specifically, I wanted to know his opinion on the Chicago White Sox vs. the St. Louis Cardinals. From what I have seen, his opinions on baseball cannot possibly be any worse than his economic thoughts as a Fed governor. Given that we were in the eighth inning in June and have had two more rate hikes since then, it seems clear to me we are now in "extra innings." Surely, something as exciting as extra innings should deserve some kind of comment, but alas, none came. I was distraught when Fisher could not muster up a single comment about what inning we are in.

Fisher went on to say:

1       "The Federal Reserve has staunchly resisted monetizing deficits for more than a quarter century, and I feel strongly that it can ill afford to monetize them today" [By "monetizing the deficit," Fisher is referring to the effects of inflation on debt.  Essentially, the Treasury could print more dollars to pay off our national debts.  In doing so, the value of the dollar would plummet and interest rates would sky rocket-because no one would want to hold dollars or dollar-denominated debt. If the Government "monetizes the deficit" slowly and over time, no one really notices (think a 2% inflation target) but if it does it rapidly, all heck breaks lose - Contrahour] 

2       "I will never vote to monetize fiscal profligacy. And while I never speak for my colleagues, it is my distinct impression that none of them will do so either"

3       "When it comes to accommodating inflation, central bankers everywhere have become, to quote my late, great father-in-law, Jim Collins, 'tighter than a new pair of shoes.'"

The Fed has staunchly resisted monetizing deficits for more than a quarter century?! The Fed has been "tighter than a new pair of shoes"?! Is that tightness what brought about a parabolic increase in money supply and 1% interest rates? Is this clown serious? [I actually disagree with Whiskey and Gunpowder on the money supply comment.  Money supply has grown in line with the economy and the rate of growth has actually decreased in the past year.  That's why the dollar isn't tanking, even though gold is going higher.  But I do agree with the 1% comment - 1% interest rates are far from being "tight" - Contrahour]

Fisher did make two comments that are 100% believable:

1       "Five years ago, Chairman Greenspan told his colleagues at the FOMC that Information Age technology had begun rewriting the operations manual for the economy. 'We really do not know how this system works,' he said. 'It's clearly new. The old models just are not working'"

2       "I believe the same can be said of globalization today: We really do not understand how globalization works."

Finally, I leave you with these Fisher comments:

1 "No government anywhere in the world can go on taxing and spending as if it is still operating in yesterday's economy. If the United States is to remain an economic colossus, its fiscal authorities, like its central bankers, will have to become paragons of prudence and restraint, implementing policies that will put the nation in a position to bolster, not hamper, its competitive edge"

2 "The FOMC has taken note of the fiscal situation, as shown by this pre-Katrina passage from the released minutes of the Aug. 9 meeting: 'Few signs were evident that greater fiscal discipline in the budget process would emerge anytime soon'"

3 "Business is risky enough without the additional uncertainty created when a nation's unit of account -- in plain language, its money -- is undermined."

Truer words were never spoken, but unfortunately the evidence is clear that Fisher has no idea what he even said. Our money right now is undermined, backed by nothing, and printed at will.

Congressional spending is running amok, and the purchasing power of the U.S. dollar is based only on the faith of those willing to accept it.

Comments

[RichL]

The Fed can't control the excessive fiscal spending. It sees its mission to preserve the value of the dollar by keeping the amount of goods the dollar buys relatively stable over time. Raising rates to compensate for the implied inflationary effects of excess spending is the only thing they can do. They are being true to their mission, as opposed to being the political whores that the Congress and president are. The Fed's only card to keep federal spending in check, if there is any discussion, is to threaten to aggressively raise interest rates, and to do so if the circumstances warrant.

[ContraHour]

Your point is well taken. I'm not upset with his point about monetizing the deficit...I'm upset with his delivery and his obvious lack of experience in dealing with financial markets.

He's very straight forward which I think is a positive. The problem is that I don't think he has a clue how the FOMC goes about making its decisions or how financial markets work. That makes his candor very dangerous.

For instance, several months ago he implied on CNBC that the Fed was close to being done raising rates. This was clearly not the case given the meeting notes and continued rate increases. Fisher has to understand that he can't go on CNBC to state his personal opinion especially if it has no basis in reality. Any Fed official that goes on CNBC has to know that they are sending a message directly to the financial markets and that markets will react to that information.

The second issue I have with Fisher is that he is overstating the truth. Central bankers around the world are not "tighter than a new pair of shoes". The Fed has just started raising rates from a post WWII low of 1% which set off the greatest housing bubble in American history. Japan is still at 1%. The European Central Bank has been at 2% for two years. The only banks that have been tight are the Bank of England and Latin American banks. The US is finally headed for tight monetary policy but as far as I can tell its still in the neutral camp right now.

Finally, it's hard to take him seriously about deficit reduction after he says something like American's "provide a service for the rest of the world. If (the US) were running a current account surplus or trade surplus, what would happen to economic growth worldwide and what would be the economic consequences." I don't think excessive consumption and personal debt are providing a service to anyone. And if the Fed were actually "tight" Americans wouldn't be running up their home equity lines to buy a High Definition Flat Screen TVs. They would be putting the money in the bank to earn a decent interest rate.

I think Fisher should take a lesson from Greenspan and not speak clearly unless he has an important message to send to the markets. Rather than yank the markets around on a chain, Fisher should just keep his mouth shut until he figures out how things work.

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