The Bishop and the Butterfly: Murder, Politics, and the End of the Jazz Age

    Richard fisher, dallas Fed: a "pretty ugly" dissenter?

    By Oxy Mora on Tue, 09/13/2011 - 10:38am |

    Richard Fisher is the President of the Dallas Fed and I would like to have overheard his personal reactions to Ponzi Perry's physical threat against the mild mannered Fed Chairman, Ben Bernanke. It seems that Ponzi and the Tea Party just love to beat up on the Fed, particularly, QE2. Actually, Richard Fisher doesn't care much for QE2. And as a Dissenter at the the Fed's FOMC meeting in August, Richard Fisher has become an instant hero of tea baggers who have positioned him as a rough riding adversary of Uncle Ben and the librul FOMC.

    I have been interested in Fisher 's remarks over the last two years because he seems to make sense about what I had referred to as Bernanke's leaky pipes. IMO, the problem with QE2 and monetary policy in general is that the water moves in large diameter pipes to large banks which hoard it and the water never flows through the small pipes leading to the community banks and small businesses who are having the credit drought.  (shameless references to my previous blogs).

    With regard to what Fisher dissented from in the August FOMC meeting, it was the published statement that interest rates would be kept low well into 2013. Fisher felt that the "benefit of stating that the FOMC  anticipates economic conditions were likely to warrant holding the base rate at 'exceptionally low levels...at least through 2013' " was outweighed by the possibility that small businesses would have an incentive to delay borrowing for expansion. He stated that small businesses were already likely to delay borrowing for expansion--partly because of the rancor of the debt ceiling debate in the weeks preceding the FOMC's meeting.

    Far from being a pretty-ugly-tea-bagging dissenter, Fisher's views are collegial, perceptive, and because he mostly agrees with me, very much right on. He gave a speech yesterday at the NABE conference in Dallas. The speech,"Of Moose and Men", can be found on the Dallas Fed website.

    Compared to my plumbing metaphors, Fisher uses automobiles. He states that the Fed can provide the gas but small banks and small businesses must step on the pedal and engage the transmission. And in the economists' mantra du jour(it's up to policy makers), including folks like the crew at PIMCO, Fisher goes right back to the policy makers in Washington. It's policy makers who are in the driver's seat, the central bankers are the kids in the back seat who are asking, "when are we going to get there?" Investment needs to have incentives, companies need to invest and hire in order to prime the pump of aggregate demand. Fisher likes the fact that after Obama's speech, they are fighting to find the balance between short term "goosing" of the economy and long term deficit reduction. Fisher is anything but the tea baggers' dream of a Bernanke saboteur.

    As for Ponzi Perry's grand plan to ride the Texas "jobs miracle", Fisher points out that Texas has had a 40 year record of a 1% positive gap in job growth over and above the national average, which is exactly where it is now. He also mentioned that Texas is "blessed with an abundance of natural resources."

    And in the most telling graph I have seen anywhere, Fisher explains why the economy is doing so badly. He states that the bad economy in the U.S. was caused by a banking crisis. Then the graph shows that the economic aftermath in the U.S. is exactly that of every other country which has had a banking crisis.

    Tea Baggers: Where is thy Dissenter sting now, if not the upscale renaissance Texas banker from the Dallas Fed?

     

    Comments

     

    Of course, in Texas we have a long tradition of outperforming the nation—a tradition matched only by our long-standing reputation for modesty. The 1.1 percentage-point gap we’ve seen between Texas and national job growth over the current recovery corresponds almost exactly to the long-run (40-year) historical gap between our growth rate and the nation’s

     


    by Oxy Mora on Tue, 09/13/2011 - 10:45am

    Hot shite, managed to embed Fisher's quote.

    The entire speech can be found at www.dallasfed.org.


    by Oxy Mora on Tue, 09/13/2011 - 10:47am

    I thought this was a good title when I ran across it a couple days back:

    Is Texas A Ponzi Scheme?

    By Matthew Yglesias on Sep 8, 2011

    Points made are interesting, too.


    by artappraiser on Tue, 09/13/2011 - 2:43pm

    Thanks Artsy, good article referencing Texas' high population growth. And in fact, Texas actual unemployment rate right now is 8.4% compared to 9.1% for the nation. The key point is that the 8.4% is the highest the unemployment rate has been since the oil recession in the late '80's.  And right now energy prices are extremely favorable to Texas, so according to historical standards employment should be a lot better. In fact, as your article suggests, Texas is barely keeping up.  


    by Oxy Mora on Tue, 09/13/2011 - 6:01pm

    Mostly I agree with Fisher's speech, but beyond the typical complaint of too much regulatory burden upon regional and community banks, actual fixes go begging.

    So we are left with a traditional banking system and Fed monetary tradition which is now in the context of fewer small banks and larger large banks. Basel III may prevent the same kind of banking crisis from happening again, but the essential questions which go begging are:

    Aside from the assertion that this time is no different except that recessions from banking crises take longer, particularly now that it is again a world banking crisis, what has been missed about structural changes. How can a monolithic central bank which hasn't changed react to a world which has?

    Are there aspects of the new normal in the U.S.--the new distribution of wealth, the aging population, the out of date skills of workers--all of this in the context of globalization--do these aspects command new fixes by the central bank?

    I don't care whether or not it's in the charter of the Fed but someone has to get serious about the actual mechanics--in the leaky pipes, or the transmission, or whatever metaphor one wants. There has to be a new mechanism of pumping liquidity into a "bank" which will in turn hard pipe it to small businesses.

    I don't care what you call it, "infrastructure bank" is a start. But why don't we position it as it actually is:"Mega banks and mega corporations form a new bank to provide third world style micro lending to small businesses in the U.S."


    by Oxy Mora on Wed, 09/14/2011 - 10:55am

    The pretty ugly Fed Dissenters include McConnell, Kyl, Boehner and Cantor who ahead of the FOMC meeting report due out in a few hours sent Bernanke a letter with the intimidating tone of Rick Perry and, in effect, a not so veiled threat directly related to Perry's pretty ugly threats.

    "The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy."

    In other words, we do not want stimulus which would help the economy and thus re-elect Obama.

    Even the Peterson Institute weighed in. According to senior fellow Joseph Gagnon, the letter is "outrageous".

    What's clear is the extent the Tea Party continues to call the shots with the Republican Party. The pinnacle of the Eastern Establishment, the Peterson Institute, is calling out the Congressional Republican leadership. IMO the letter and the Institute's response confirms the depth of the divisions within the Republican party between the Tea Party and what remains of its  "establishment" component--represented by the Perry-Romney divide.

    I assume the Fed will come up with a $300-600 Billion Twist, plus perhaps reducing the interest banks receive on excess reserves at the Fed. It will be interesting to see if Dallas President, Fisher, will again dissent.

    I would fall off my chair if the Fed comes up with any new "tools" which would actually funnel all of the new liquidity into small business loans and mortgage refinance instead of commodity price increases.  I do think Twist will help the stock market and if mortgage rates get any lower I'm going to refinance my mortgage because I can't help myself.


    by Oxy Mora on Wed, 09/21/2011 - 10:25am

    Bernanke just stuffed Boehner, The Tea Party and Rick Perry.

    Operation Twist--rolling short maturity treasuries over to longer term maturities--is indeed going to happen. $400 Billion between now and June, 2012.

    Most analysts were projecting a total twist of $300 Billion. It's unscientific of course, but I'm going to call the extra $100 Billion the "Perry stuff." I think the letter from McConnell, etc., bought an extra $100 Billion of "stimulus".

    THe actual stimulus is expected to be small since there are not new purchases, just a shift in maturity dates. In effect the Fed will purchase most of the Treasury's issuance of 30 year bonds between now and June 2013. The ideas  behind all of this are to nudge investors into higher risk investments, and to lower long rates as much as possible to encourage mortgage and business borrowing. I think where Fisher is on all of this is that without corresponding assisting from the fiscal policy makers in Wash, there is no method to push liquidity out to the ultimate consumer.

    As happened in the last FOMC, there were three dissenters, including Richard Fisher of the Dallas Fed.

    In addition to the maturity twist the Fed will re-invest principal from Agency mortgage debt back into Agency debt.


    by Oxy Mora on Wed, 09/21/2011 - 2:56pm

    Fisher was  interviewed for an hour on Bloomberg Radio today and he is a rare bird (Renaissance  Hawk). If either the Republican or Democratic conventions ever become deadlocked, I would proffer this man in a heart beat.

    Essentially Fisher reinforced many of the comments I have already included in the blog. His dissent on the FOMC goes mostly to "efficacy". The bank has provided liquidity. The fiscal authorities have to provide the transmission system to the community banks and out to the small businesses.

    While he is a hawk he surprisingly doesn't think, as conventional wisdom has it, that the Fed is "out of bullets". IOW if we really started to tank in severe deflation, the Fed would, yes, print money and more.


    by Oxy Mora on Mon, 10/03/2011 - 3:41pm