Monday, September 24, 2012
FED RICHARD FISHER SPEAKS
http://www.dallasfed.org/news/speeches/fisher/2012/fs120919.cfm SEPT 19th
"We can easily conjure up plausible theories as to what we will do when it comes to our next tack or eventually reversing course. The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. And nobody—in fact, no central bank anywhere on the planet—has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank—not, at least, the Federal Reserve—has ever been on this cruise before."
"This much we do know: Our engine room is already flush with $1.6 trillion in excess private bank reserves owned by the banking sector and held by the 12 Federal Reserve Banks. Trillions more are sitting on the sidelines in corporate coffers. On top of all that, a significant amount of underemployed cash—or fuel for investment—is burning a hole in the pockets of money market funds and other non depository financial operators. This begs the question: Why would the Fed provision to shovel billions in additional liquidity into the economy’s boiler when so much is presently lying fallow?"
The FED's MANDATE:
"As you all know, the Federal Reserve’s mission is mandated by the Congress. It calls for us to steer a monetary course according to a dual mandate—we are charged with maintaining price stability while conducting policy so as to best assist in achieving full employment."
"In the current tumultuous economic sea, facing strong headwinds common in the aftermath of financial crises and balance-sheet recessions, our desired port is increased employment. Certain theories and various hypothetical studies and models tell us that flooding the markets with copious amounts of cheap, plentiful liquidity will lift final demand, both through the “wealth effect” channel and by directly stimulating businesses to expand and hire. And yet from the perspective of my watch station—as I have reported time and again—the very people we wish to stoke consumption and final demand by creating jobs and expanding business fixed investment are not responding to our policy initiatives as well as theory might suggest."
"Surveys of small and medium-size businesses, the wellsprings of job creation, are telling us that nine out of 10 of those businesses are either not interested in borrowing or have no problem accessing cheap financing if they want it. The National Federation of Independent Business (NFIB), for example, makes clear that monetary policy is not on its members’ radar screen of concerns, except that it raises fear among some of future inflationary consequences; the principal concern of the randomly sampled small businesses surveyed by the NFIB is with regulatory and fiscal uncertainty." "“If your costs of borrowing were to decrease by 25 or more basis points, would this induce you to spend more on job-creating expansion?” The answer from nine out of 10 was No.”
"To be sure, buying in stock will have a positive wealth effect on that company’s shareholders, but putting the equivalent amount of money to work in spending on plant and equipment would put more people back to work more quickly."
Bottom line is, from the FED's horses mouth, current FED policy is not having the desired effect on business, but yet they just announced a scaling up of QE to another new level of historical insanity....as they have PROOF it's not working, not aiding business borrow nor investment...but they keep piling on!
And Fisher also points out, from these uncertain, uncharted waters Bernanke has swam us into.....there is NO SURE WAY TO GET OUT!
Posted by Marc R at 6:11 AM