Dallas Fed's Fisher: Large Deficits Will Be Run For as Far as the Eye Can See

Apparently Richard Fisher is hip to the little debt problem the US has going right now and may not be the alone in expressing a going concern doubt on the entity. Burn.


Federal Reserve Bank of Dallas President Richard Fisher said the U.S. can’t ignore the effect of the growing federal deficit on Treasury yields and the outlook of investors.

“Even under the most optimistic of scenarios, large deficits will be run for as far as the eye can see,” Fisher said in the text of a speech today in Tucson, Arizona. “The markets, fearing the consequences of runaway deficit financing, have bid up longer-term nominal rates, resulting in a yield curve that is now historically steep.”

Fisher’s remarks underscore the view expressed last week by former Fed Chairman Alan Greenspan, who told Bloomberg Television that he’s “very much concerned” about the financial situation of the U.S. Greenspan said higher yields are a “canary in the mine” that may signal further interest-rate gains and reflect investor worry about the “huge overhang of federal debt.”

“Some of this, of course, may reflect an improvement in economic growth,” which should be about 3 percent this year, Fisher said during the speech at the University of Arizona’s Eller College of Management.

Still, “we cannot turn a blind eye to the effect that growing government indebtedness has on investors’ confidence and Treasury yields,” said the bank president, 61, who has led the Dallas Fed since 2005 and doesn’t vote on the Federal Open Market Committee again until 2011. The Fed shouldn’t step in to buy Treasuries just to hold longer-term rates down, which would create the perception that policy makers are “monetizing the debt,” he said.

Fisher, ever the teacher and poet, gives us this from Arizona (stick your pinky out while you're sipping your coffee and reading it):

Consider this quote, from an essay titled "A Time of Unexampled Prosperity" in Washington Irving's The Crayon Papers:

"Every now and then the world is visited by one of these delusive seasons, when ‘the credit system' ... expands to full luxuriance: everyone trusts everybody; a bad debt is a thing unheard of; the broad way to certain and sudden wealth lies plain and open; and men ... dash forth boldly from the facility of borrowing.

"Promissory notes, interchanged between scheming individuals, are liberally discounted at the banks.... Everyone talks in [huge amounts]; nothing is heard but gigantic operations in trade; great purchases and sales of real property, and immense sums [are] made at every transfer. All, to be sure, as yet exists in promise; but the believer in promises calculates the aggregate as solid capital....

"Speculative and dreaming ... men ... relate their dreams and projects to the ignorant and credulous, dazzle them with golden visions, and set them maddening after shadows. The example of one stimulates another; speculation rises on speculation; bubble rises on bubble....

"Speculation ... casts contempt upon all its sober realities. It renders the [financier] a magician, and the [stock] exchange a region of enchantment.... No ‘operation' is thought worthy of attention that does not double or treble the investment. No business is worth following that does not promise an immediate fortune....

"Could this delusion always last, life ... would indeed be a golden dream; but [the delusion] is as short as it is brilliant."

Irving was writing about the Mississippi Bubble fiasco of 1719! So, yes, just as Wodehouse said: Fate has a nasty habit of repeatedly sneaking up behind contented financial markets with a bit of lead piping.

If only he were in a position to practice what he preaches. Poor bastard, surrounded by inflationary idiots who think 4% is a reasonable target. I'm not talking about running up inflation to 4% just to clear out some of the bad juju swarming around markets, I'm talking about people within the FOMC who think 4% is totally reasonable most of the time. I'm sure it would make their jobs easier when it comes to dictating monetary policy but vaporizing savings isn't really the way to win favor with the already pissed off unwashed masses.

Just a suggestion.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Anonymous said...

Ooooohhh, JDA – you made my stony little heart go “pitter patter” with that post. But you know how I love reading history of all kinds. Case in point, who in their right mind reads MacElvaine’s The Great Depression just as the stock market is going through the roof in 2006-2007?? Bat shit nut jobs wearing tin foil hats in the Mid-West – that’s who!

"History doesn't repeat itself, but it does rhyme."
-- Mark Twain

But that’s ok because I prefer the company of tin foil hat wearing bat shit nut jobs from the Mid-West anyway – even the dead ones!