Richard Fisher’s ‘Super Easy’ Fed

Richard Fisher represents the Federal Reserve Bank of Dallas. He’s been saying some very interesting things lately.

Bloomberg’s headline paraphrasesFisher with ‘Super-Easy Fed Can’t Alone Boost Manufacturing’. In other words, an economic revival needs much more than easy money. Who’d’ve thought?

The adopted Texan also referred to thethe gang that can’t shoot straight in Washington’ as the source of a slow economic recovery. Regulations and the deficit are weighing on the economy. We doubt the average American has a clue about either, but someone must take the blame.

And blaming politicians is all well and good. But after hundreds of billions in stimulus, saying it’s someone else’s fault the economy isn’t recovering seems a little sheepish. Why print $85 billion a month if it doesn’t work?

Recent stock market moves around the world have been due to the release of the July Fed minutes and speculation about reducing, or ‘tapering’ QE. Fisher reckons the meeting minutes ‘represented the conversation perfectly well.’

Huh, ‘represented’? Why wouldn’t minutes ever represent a conversation well? Perhaps because Fed minutes aren’t a record of the conversation, but a summary of what was said. And because they’re released weeks after the conversation took place.

Imagine being able to change what you said up to three weeks later. No wonder some people think these guys are smart. They can rewrite history.

Personally, we view the FOMC meetings going down like parish council meetings in the TV show Vicar of Dibley. Channeling the haughty character Mr. Houghton, Fisher warned the Fed had to be ‘careful not to be disruptive’ to financial markets as it tapers QE.

Elephant in a china shop would be putting it mildly. Right now, the Federal Reserve is the market. It’s buying the overwhelming portion of the US government’s deficit, which is of course the amount of debt being issued (on a net basis).

Then there are the Mortgage Backed Securities the Fed is buying $40 billion of a month. Fisher points out ‘we’re basically up to the point where we’re going to be buying 100 percent of the issuance at some point and nobody wants to be on the buy side to that extent, at least I don’t want to be.’

Good luck with the bond market and housing recovery if they stop buying assets. The entire demand side for both will suddenly disappear.

The point of Fisher’s comments is that the Fed is aware of the corner it’s painted itself into. That’s not a good thing. When it comes to central banking, ignorance is bliss. That’s because it’s an inherently stupid idea. Fixing the price of debt is as dumb as fixing the price of oranges. You end up with surpluses and shortages. Right now, we have a surplus of debt. We’d be better off if the Fed had no clue and never did anything to ‘fix’ the problems it creates.

So what’s the outlook, given all this nincompoopery? September tapering is looking less likely by the minute. Bank of America Merrill Lynch analysts recently pointed out the big ‘if’ in the Fed’s minutes is coming into play. That is, if the economy weakens, tapering will be delayed.

Given that a research note from the San Francisco Fed estimated the enormous QE2 added just 0.13% to real GDP, it’s a little odd to raise this condition.

But now that it is raised, how is the economy doing? Well, the Merrill Lynch analysts pointed out that even the FOMC referred to economic weakness in several areas in its July minutes. Now Gallup, a polling organisation, has come up with this whopper:

It shows polled unemployment surging while government collated employment is falling.

We’ll leave it to you whether you prefer private polls or government numbers. (In fairness, the government numbers post that surge in polled unemployment aren’t out yet. Be afraid.)

But the point is that the potential for tapering is tapering.


Nick Hubble+
for Markets and Money


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Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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