How To Tell Half The Truth


There are those in the “Fedspace” that attempt to make somewhat of an effort to be informative in their speeches.  Richard Fisher is typically one of these; however, when it comes to actual fiscal policy it’s difficult, because the truth is hard to stomach — or speak of.

In a nutshell, my vision has been as follows: In 2008, businesses were experiencing cost-push pressures. They discovered they could not price the goods and services they were selling aggressively enough to match rising production costs. Headline inflation for both June and July 2008 was scored at an annualized rate of 11 percent, as measured by the Consumer Price Index; the 12-month rate in July 2008 was 5.5 percent—the highest level since January 1991. Driven by fear that inflation was beginning to systematically take root, and aided by an acceleration in the ability to harness productivity-enhancing technology and more sophisticated exploitation of globalization, businesses began to focus in earnest on cost containment. They began this process with their largest cost center, labor. When the Panic of 2008–09 struck in late summer, they doubled down on their cost-control initiatives. Final demand imploded; pricing power vanished; the prospect of top-line growth evaporated. To preserve margins, cost-control management became even more aggressive, with the result that labor took it in the neck and unemployment skyrocketed.

You don’t think that this chart had anything to do with that do you Richard?

Hmmm…. the economy tends to have a lag in it on inputs, doesn’t it?  Gee, what was happening in the time leading up to 2008?  There wasn’t this massive surplus of credit money that was flowing into the economy and driving up prices, was there?

Today, over three years into this dynamic, businesses remain cautious about cost control and adding significantly to payrolls and job-creating domestic capex. This is despite being awash in liquidity. The Federal Reserve has flooded the markets with cheap, readily available money. The private sector, the wellspring of productive job creation, now has the financial means to grow employment. But it lacks the incentive to do so.

Well, how many times do you expect people to get fooled?

This is one of the things I find most-amusing about the Fed wonks of various sorts — they never actually talk about what not only happened, but what is still going on!

How does Richard think that the above chart happened?  It wasn’t from the market being flooded with cheap, readily-available credit money, was it?  Oh wait….

My reluctance to support greater monetary accommodation has been based on efficacy: With businesses’ cash flow—driven by record high profits and bonus depreciation—at an all-time high, both absolutely and as a percentage of GDP; with every survey, including those of small businesses, indicating that access to capital is widely available and attractively priced;[6] with balance sheets having been amply reconfigured; and with bankers and nondepository financial institutions sitting on copious amounts of excess liquidity, I have argued that further accommodation was unlikely to motivate the private sector to put people back to work. It might even prove counterproductive should it give rise to fears the Fed is so hidebound by academic theory as to be blind to the practical consequences of harboring an ever-expanding balance sheet. This inevitably raises concerns we are creating distortions in the fixed income markets that inhibit proper market functioning, or concerns that—despite our protestations to the contrary—we are given to monetizing the government’s debt, an impulse that ultimately destroys a central bank’s credibility.

We got in this mess because The Fed destroyed proper market function, in conjunction with Congress that wanted desperately to overspend!

Now, having done so, you wish to ignore that which you (and Congress) intentionally created?

I maintain that no matter how much cash you have on your balance sheet, or how compliant your banker might be, or how cheap the cost of money, you will not commit substantial capital to expanding your payroll or investing significant amounts to expand plant and equipment until you know what it will cost you to run your business; until you know how much you will be taxed; until you know how federal spending will impact your customer base; until you know the cost of employee health insurance; until you are reassured that regulations that affect your business will be structured so as to incentivize rather than discourage expansion; until you have concrete assurance that the fiscal “fix” the nation so desperately needs will be crafted to stimulate the economy rather than depress it and incentivize job creation rather than discourage it; or until you are reassured that the sinkhole of unfunded liabilities like Medicare and Social Security that Republican- and Democrat-led congresses and presidents alike have dug will be repaired so that our successor generations of Americans will prosper rather than drown in dark, deep waters of debt.

Oh really Dick?  How the hell did that happen?

That time is now. Our nation’s economy is at risk. The Federal Reserve has done everything it can to reduce unemployment without forsaking our sacred commitment to maintaining price stability, or crossing over the monetary river Styx into full-blown debt monetization. I personally don’t care which party is in the White House or controls Congress. All I know is that the “honorable” members of Congress and presidents past, Republicans and Democrats alike, have conspired over time, however unwittingly, to drive fiscal policy into the ditch. They purchased their elections and reelections with popular programs so poorly funded that they now threaten the economic well-being of our children and our children’s children. Instead of passing the torch on to the successor generation of Americans, they have simply passed them the bill. This is the opposite of honorable.

Like all of you here, I am sickened by our politicians’ tendency to kick the can down the road, even when it is starkly clear that doing so jeopardizes America’s well-being. Small wonder that some recent polls show only 9 percent of the American people view Congress favorably. (One senator posited that the 9 percent consisted of blood relatives and congressional staff!)

The above bolded text cannot happen without The Monetary Authority (that would be The Fed) intentionally repressing interest rates so the market is unable to punish, in real time, such ridiculous overspending and purchased elections!

So who did that eh?  You did it!  You intentionally and willfully put in place monetary programs in the 1990s, in the 2000s and now once again in the contemporary time frame that encouraged, bolstered and provided for Congressional overspending and vote-buying programs and you refused to stand back and let the market punish such behavior!

In fact the last revolt you allowed to take place at The Fed was when Clinton tried to ram through his “Hillary Care” health program.  From that point forward intentional financial repression became the order of the day and two monstrous bubbles, both fueled by ridiculous government overspending and an utter lack of market discipline were the result.

If the American dream is to survive, we will need to re-create a fiscal and regulatory environment that—in conjunction with the Fed conducting prudent monetary policy—will liberate the forces of entrepreneurial risk taking that have always been America’s hallmark, and that allowed successor generations to live far better lives than their parents ever thought possible. Only then will we get back to generating the jobs and the prosperity for all of our people, not just for financial sharpies. Only then will we restore faith in the prospect of upward mobility for all, not just the few. And only then, with the nation’s economy firmly back on a trajectory of promise and prosperity, will we feel “braced” with confidence that no force can dislodge by sneaking up behind us with a proverbial lead pipe.

You, and the rest of The Fed, Mr. Fisher, need to “Come to Jesus” if you’re really going to spout this crap, considering that you and your cohorts are the very enablers who led to this mess in the first place.

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