Dallas Fed's Fisher Takes Issue With This Whole Monetization Plan
As is almost always the case, Dallas Fed President Richard Fisher does not disappoint. Well, perhaps he disappoints Dirty Fed operatives who wish he'd keep his trap shut and keep to the script but personally it warms my rotten little Fedbashing heart to read his speeches and his latest from San Antonio to the Association for Financial Professionals is no exception.
Psst, the Fed has no choice but to keep monetizing now, precedent set:
In his speech in Jackson Hole, Wyo., in August, Chairman Bernanke had asked all of us to consider the costs and the benefits of further accommodation. My response was that I was skeptical about many of the presumed benefits of further asset purchases. I was more certain of some of the potential costs.
One cost is the risk of being perceived as embarking on the slippery slope of debt monetization. We know that once a central bank is perceived as targeting government debt yields at a time of persistent budget deficits, concern about debt monetization quickly arises.
I realized that two other central banks were engaging in quantitative easing—the Bank of Japan and, most notably, our friends at the Bank of England. But the Bank of England is offsetting an announced fiscal policy tightening that out-Thatchers Thatcher. This is not the case here. Here we suffer from fiscal incontinence and regulatory misfeasance. If this were to change, I might advocate for accommodation. But that is not yet happening. And I worry that by providing monetary accommodation, we are reducing the odds that fiscal discipline will be brought to bear.
Fiscal discipline = LOL! What is that again? Funny that a president of a Federal Reserve bank might share the exact same opinion of Jr Deputy Accountant (hey, stranger things have happened) that continued monetary support from the Fed packaged under the guise of economic stimulation might create an assumption on the part of our dear government that this sort of behavior should be expected or, worse, demanded going forward. At what point is it enough? At what point does the Fed stop and say "You know what? We overstepped our boundaries and have all but forgotten that we have but two jobs: to keep unemployment and inflation low." Obviously that memo has been lost within the hallowed halls of the Federal Reserve and there is no one around sane and wise enough to tell them in no uncertain terms that they better knock it off or find themselves out of a job like the rest of America.
But I digress. Returning to Fisher's speech, there's also the problem of artificially inflating equity markets being a completely useless endeavor when it comes to job creation. Duh.
As to the proposition that higher prices of financial assets will liberate those most in need, I wondered aloud if that were indeed true. We are already seeing the beginnings of speculative activity in stocks, bonds, buyouts and commodity markets. The rich and the quick are certainly able to exploit these circumstances to get richer. I have no problem with market operators making money; I did so myself in my previous life as a funds manager (before I took the vow of financial chastity and joined the Fed!). But I take no comfort, and see considerable risk, in conducting monetary policy that has the consequence of transferring income from the poor and the worker and the saver to the rich. Senior citizens and others who saved and played by the rules are earning nothing on their savings, while big debtors and too-big-to-fail oligopoly banks benefit from their subsidy. I know of no presidential administration or Congress, Republican or Democrat, that will tolerate, let alone advocate for, that dynamic for long, and I expressed my worry that this could come back to bite us and possibly threaten our independence.
I hate to break this to my dear most favorite Fedhead but, uh, Fed independence, if such a thing ever existed, was discarded by the wayside a long, long time ago. QE2 only manages to hammer that point home, showing that the Federal Reserve is easily convinced to play bitch to the whims of whomever is pulling the strings. Why not? Ignoring that they've failed miserably in achieving both components of their dual mandate, they get all sorts of praise for a job well done as long as the free money keeps flowing. See also: Obama giving Bernanke one hell of a "good boy" pat on the head while on his little trip to India.
Keep pleading with them, dear favorite Fedhead, maybe one of these days they will actually listen. And if that doesn't work, might I recommend middle fingers and picketing outside of the Board instead of actually attending FOMC meetings? Just sayin.
I asked that the FOMC consider that we might be prescribing the wrong medicine for the ailment from which our economy is suffering. Liquidity and abundant money are not the binding constraints on the economic activity we wish to see. The binding constraints are uncertainty about income and future aggregate demand, the disincentives fiscal and regulatory policy impose on ridding decisionmakers of that uncertainty, and the reluctance, given those disincentives, of those who have the power to create jobs for our people to invest in undertakings that would create them.
The remedy for what ails the economy is, in my view, in the hands of the fiscal and regulatory authorities, not the Fed. I could not state with conviction that purchasing another several hundred billion dollars of Treasuries—on top of the amount we were already committed to buy in order to compensate for the run-off in our $1.25 trillion portfolio of mortgage-backed securities—would lead to job creation and final-demand-spurring behavior. But I could envision such action would lead to a declining dollar, encourage further speculation, provoke commodity hoarding, accelerate the transfer of wealth from the deliberate saver and the unfortunate, and possibly place at risk the stature and independence of the Fed.
The economy, as it has been up until now, is unimpressed with even modest stimulus. Sure equities slobber at the idea and sure it keeps Obama off Bernanke's back but to what end?
$15,000 gold and a 28,000,000 DOW? Bring it, bitches, and don't come banging on my bunker door asking to borrow a cup of gunpowder.