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Thursday, October 06, 2005 8:58 PM

The Wisdom of Richard Fisher

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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 FOMC.

Here is a short recap:

  • 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?
  • 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 have 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 today, October 4th, 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 can not possibly be any worse than his economic thoughts as a FED governor.

Given that we were in the 8th 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 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.

Instead of baseball, Fisher was yapping about football. "I traveled to College Station this weekend to watch the Aggies eke out an overtime victory against the Baylor Bears. Before watching those two teams from storied Texas universities go at it hammer and tongs, I spent a couple of hours with the Aggie Corps of Cadets. After the game, I heard that the Texas Longhorns had walloped Missouri.".

Those comments came when Fisher spoke before The Greater Dallas Chamber Economic Forum. He also offered A Perspective on the Economic Outlook. Let's tune in to his economic outlook:
From an economic standpoint, Katrina and Rita have left their marks on Texas. Some state firms lost inventories. Others lost customers that were in the supply chain for the impacted area. The state budget has also taken a hit. A total of 265,000 evacuees fled to Texas, and many have no home to return to. More than 45,000 evacuee students have enrolled in Texas public schools—about 1 percent of total Texas enrollment. Another 10,000 to 15,000 students may be in the pipeline. The fiscal burden for evacuees in public schools could be $335 million to $432 million, assuming the evacuees remain in Texas for the entire school year.

Other negatives for Texans include increases in the costs of doing business. Rebuilding efforts will push up prices for construction materials. Many industries are likely to encounter higher fuel, freight, utility and transport costs—a heavy burden for those sectors, like airlines, already facing hardships. Consumers will have to pay more for winter heating bills and possibly gas at the pump, so they may have less to spend at retail stores and restaurants.

Yet, even with these drags on the economy, it appears that the hurricanes’ net effect will be slightly positive for Texas.
Obviously Fisher is yet another proponent of the "Broken Window Fallacy". If two hurricanes were good for Texas, three must be better. Right? Perhaps Fisher believes the real problem with Rita was that it did not break enough windows. For those not familiar with the concept, I highly recommend reading the Parable of the broken window.

At this point I must issue a staunch warning to my friend and fellow Daily Reckoning writer, the Mogambo Guru. Mogambo, if per chance you are tuned in I have a duty to tell you to have a stiff drink (or three) before reading any further. I would hate to be responsible for causing some kind of Mogambo Consternation.

With that warning, Fisher went on to say:
  • 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.
  • 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.
  • 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?

Fisher did make two comments that are totally 100% believable:
  • 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 systems works," he said. "It’s clearly new. The old models just are not working."
  • 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:
  • 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.
  • 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 any time soon.”
  • 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 undetermined, backed by nothing and printed at will. Congressional spending is running amok and the purchasing power of the US dollar is based only on the faith of those willing to accept it.

It is clear to me that Fisher was arguing for a return to the gold standard.
Unfortunately he doesn't have the slightest clue about what he was really saying.

Mike Shedlock / Mish

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