can the federal reserve stimulate the economy? - aspen ideas
TRANSCRIPT
THE ASPEN INSTITUTE
CAN THE FEDERAL RESERVE STIMULATE THE ECONOMY?
Doerr-Hosier, McNulty Room
1000 N, Third Street
Aspen, Colorado, 81612
Thursday, June 28, 2012
11
22
LIST OF PARTICIPANTS
MARIA BARTIROMO
Television Journalist, CNBC
RICHARD W. FISHER
President and CEO, Federal Reserve Bank, Dallas
* * * * *
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P R O C E E D I N G S
MR. BERG: I'm Gilchrist Berg, and I'm lucky to
be here today because I successfully renegotiated my
prenuptial agreement. I'm fortunate to be marrying the
head of operations of the Aspen Institute, at least I was
before I came up here, Amy Margerum. And then I realized
she had the opportunity to introduce who you'd have to
have been in a cage somewhere not to realize who she was
and she in the last 20 years is known to most people
anywhere on the globe having interviewed almost every
important person on the planet. I jumped at the
opportunity.
Maria Bartiromo has the most successfully wise
news program in the United States winning two Emmys for
fantastic coverage. And I can tell you, priding myself in
believing I know something about business, I continue to
be surprised by the depth and quality of her questions and
we're very, very lucky to have her today here talking with
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Richard Skinner (sic), president of Dallas Fed, only
slightly less attractive than Amy -- than Maria.
Richard, while it's noteworthy what he's done as
a member of the open market committee of the Fed, has
really unbeknownst to most people, has withstood all the
pressure against quantitative easing, and today I had the
opportunity to talk with him a little bit beforehand.
Today we have this contest between austerity and easing,
both here and around the world and the role that a voice
like Richard plays in the world today is far, far more
important than you think.
And while this room is not filled with people
and we could fill it very quickly if we were talking about
melting glaciers, it's only slightly less important
because I can assure you that in terms of what's going to
happen in this country and the economies around the world,
we're going to have to resolve whether governments are in
fact bigger than markets, whether you can create wealth by
printing dollars, and I'm happy to present to you today
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Richard Skinner (sic) and Maria Bartiromo.
(Applause)
MR. BERG: I forgot to mention the topic. It's
whether the Fed can stimulate the economy.
MS. BARTIROMO: Thank you very much, everyone.
I just want to say this is Richard Fisher, president of
the Dallas Federal Reserve. Richard, it's great to see
you.
MR. FISHER: Thank you, Maria.
MS. BARTIROMO: Yeah, I'm -- it's always hard
when you've got lots of people coming at you all the time
asking for your opinions and we know how busy you are,
it's really great to sit down with you right now. It's
such an uncertain and important time for the economy.
MR. FISHER: Well, I appreciate being here and I
look forward to our conversation.
MS. BARTIROMO: Great. So I guess let's kick it
off with your assessments of where we are because there
are so many moving parts and it seems like the markets are
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moving on every headline coming across. So let me kick it
off there. How would you characterize this recovery right
now?
MR. FISHER: Very slow and painfully slow. In
fact, I'm going to put up a chart here if we can that will
show you where we are in terms of the gap. If we keep
growing at the current rate of employment growth -- and
that's what we care about, putting people back to work --
inflation is under control for the time being. We're
running inflationary rates around 2 percent, a little bit
less, which is our goal at the Central Bank, the Federal
Reserve, but this chart, Maria, shows you that if we
expand at the present rate of expansion, it's about a
139,000 or 138,000 jobs a month. It will take us till May
of 2015 to get back to our previous peak employment
levels. This is not satisfactory. The issue is, as
referred to by our introducer, Mr. Skinner here, how can
we change the pace, and what is the role of monetary
policy and what are the agents that are responsible to
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help accelerate this pace because we went through a huge
gap down during the financial crisis 2008-2009.
MS. BARTIROMO: I want to get into this because
many of you may or may not know, Richard's background is a
business background.
MR. FISHER: That's correct.
MS. BARTIROMO: And I think because you have a
business background you really approach monetary policy
and approach economic issues differently than some of your
colleagues. So I do want to get into that and certainly
about your views on monetary policy, but let me first
follow up on this chart. Why have we seen one of the
slowest recoveries in recent decades? I mean everyone you
speak to will say that we should be at a much farther
along point in terms of this recovery than we are. What's
the problem?
MR. FISHER: It's one of the great puzzles,
because we have poured on monetary accommodation. We've --
let's use a simple analogy. We have filled the gas tank.
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There is plenty of liquidity out there. We have $1.5
trillion that are on deposit from private banks in the 12
Federal Reserve banks. That's where private banks put
their money, their excess reserves. We pay them 25/100ths
of 1 percent per annum, as you know, not very much.
And the S&P-500 companies, we figure there are
about $2 trillion of excess cash flow sitting on the
sidelines not being put to work in terms of hiring more
people and committing to more capital expansion. And then
in the non-depository financial institutions, we have $600
billion to $800 billion; no one really knows what the
numbers are. A lot of money, a lot of cash, sitting on
the sidelines. Why isn't it being put to work? We've
made it possible.
We've put it there through monetary
accommodation. Why aren't businesswomen and businessmen,
public and private, large and small, going out and
expanding their operations? Well, you referred to my
background. I don't have a Ph.D. in economics. I'm very
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proud of the fact I don't have a Ph.D. in economics. I
have an MBA and I ran money for a living and I worked for
a bank, imagine out a banker at the Federal Reserve,
pretty odd.
You do best when you limit the uncertainty you
operate under. All businesswomen and men operate under
conditions of uncertainty. But when you have maximum
uncertainty, you go into -- I'll use a Clintonism here --
a defensive crouch. And if you don't know what your cost
structure is going to be and you have reasonable doubt
about the growth of your top line, sales, revenues, and
where demand is going, you freeze. I don't care how much
money you have sitting on the sideline. And I believe
that's what's happening now. We don't have clarity. We
haven't had it for some time in terms of what incents
businesses to take the gasoline that we have filled the
tank with and step on the accelerator -- John Maynard
Keynes called it the magneto -- to engage with the
transmission of job creation.
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Something's wrong. We were knocked down
severely. We know after severe financial crisis, it takes
a long time to recover, but the pace of recovery, as shown
in those charts, is way too slow. So let's say the Maria
company. You know that you can borrow money for almost
nothing now. It's fairly readily available. Why aren't
you borrowing it? It's hard for me to understand as a
businessman why you would when you don't know what your
tax rate's going to be next year, when you have no idea
how federal spending is going to affect either your
customer base or you if you're dependent upon a portion of
it indirectly or directly.
If you have no idea what it's going to cost you
to insure the healthcare of your worker, we got a little
more clarity on that today, but we know that this will be
a battleground issue for presidential campaign. In the
meantime you keep hearing and worrying about what's going
on in Europe where we export 13 percent of the exports of
this country.
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There's slowdown in China, which has become a
market that we have become much more integrated with, a
consequent knock-on slowdown in Latin America and
Australia and elsewhere. We are big exporters to Latin
America, particularly to Brazil now, and New Mexico. So
amidst all that uncertainty, people are just sitting on
the sidelines. And then you have one other thing that has
occurred simultaneously, which is we're riding up Morris
curve. That is productivity has been enhanced enormously
by technology.
So this is going to be a snail's pace. Now
there are parts of the country that have outperformed
others -- I come from one of them -- in terms of job
creation, but as a nation, we're way behind. And we have
run an accommodative monetary policy -- I believe that if
you depend too much on monetary policy, it gives excuse to
the -- and I'm going to use a harsh word here -- the
misfeasance of Congress. We've had generations of
Republicans and Democrats just dug a deep hole for our
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children. Spend, spend, spend; don't think about how
you're going to fund; unfunded liabilities. If we make up
for that as monetary authorities, that's the road to
Weimar, that's the road to Argentina, that's the road to
nationalist China. And we don't want to be responsible --
I certainly don't want to be responsible for that.
MS. BARTIROMO: You've said a lot of things
there. We're talking about a strong corporate sector.
Some estimates call in for cash on balance sheets of $3.6
trillion right now within the S&P 500.
MR. FISHER: Right.
MS. BARTIROMO: And they're not spending that
money in term -- aggressively, adding new heads to the
payroll because they're uncertain about tax policy. I
want to delve deeper into that. And I also want to talk
about your views about monetary policy, but let me get
your take first on health care. Today, we get the Supreme
Court upholding the President's health care legislation.
What kind of impact or implications do you envision as a
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result of this?
MR. FISHER: Too early to tell. Again, I think
this will be an issue that will be debated through the --
remember this starts in 2014. So the coordinator --
MS. BARTIROMO: But does the tax start right
away?
MR. FISHER: No, the whole program begins in
2014. And again, I'm not an advocate for either side. I
stay away from politics completely. I'm just critical of
the class in its entirety. So I'm totally nonpartisan.
You check your partisanship at the door when you come to
the Fed, and that's one of my proudest aspects of our
institution.
But there are a lot of unknowns. For example,
the meta -- the Medicaid portion is a huge dollar expense.
Some states will run Medicaid and -- up to certain levels
of poverty -- the ruling is actually a 130 percent of the
poverty level. In Texas, it's 27 percent, in California,
it's 103 percent. If people come up to the maximal level,
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they're not required to, and this was a key part of the
ruling. The Supreme Court ruled that a state has a right
not to, but if they did, it would cost the American
taxpayer another $480 billion between 2014 and 2019.
That will be interesting to see how that plays
out and what kind of fiscal pressures it puts on not only
states, but additional pressures on the federal
government. But Maria, to be honest with you, this is
new. We need to think through this thing and I work for
the monetary for the United States, not for the fiscal
authority.
MS. BARTIROMO: So let's start with monetary
authority. You dissected twice, I guess, in the last
couple of years, in terms of some of these stimulus
packages --
MR. FISHER: More than that.
MS. BARTIROMO: More than that for sure. But
just in most recent couple of programs, Operation Twist,
QE2, now we've got, you know, expectations or calls for
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QE3. Why are you so against the Federal Reserve being
there and bailing out this economy?
MR. FISHER: I'm not against Federal Reserve
bailing out the economy. The question is efficacy, what
works and what doesn't work. I mentioned earlier we have
a lot sitting on the sidelines. Question, why would you
add to that if it's already sitting on the sidelines?
Operation Twist, for those of you that aren't familiar
with the terminology is moving out the so-called yield
curve that is we have a big portfolio at the Treasury,
excuse me, at the Fed.
It's -- our balance sheet is almost $3 trillion
now, $2.7 trillion. It was &800 billion when we started
the crisis. We have been buying longer-term securities.
Typically we hold very short-term securities and we've
been moving the so-called yield curve. By the time we're
done with the program that the committee just agreed upon -
- which I argued against but I was in a minority. It's
the nature of deliberative bodies, the majority ruled for
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it and that's the way it works and the way it should work -
- we will end up having 30 percent, a third, of all
Treasuries between the maturity years of 6 and 30.
We will end up having no maturities between 3
months and 3 years. One of the benefits of owning
Treasury bills and notes is that they role off. In this
case, we're going to have to make a very tough decision at
some point to get out of those. And if the economy picks
up as we hope, we'll get out of them at higher interest
rates meaning they'll be marked down in price.
And I'm not sure what the consequence of that
are likely to be, which is why I argued against it.
Moreover, we have so much money coming in the country now
because of the European situation and elsewhere. It's an
ugly analogy, but I'd like to use it which is we're the
best looking horse in the glue factory. And because of
our relative performance, a lot of foreign investment is
taking place in treasuries. I think that's had a greater
impact than what we've been doing at the Fed in keeping
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rates low.
And the real concern I have is the exit
strategy. We can build out this big portfolio, but what
happens when we need to get out of it, and what will be
the inflationary consequences of doing so? Those are big
question marks. We have theoretical answers. No central
bank in the history of the world has ever done this on
this order of magnitude. And coming back to my background
as a business guy, I have to automatically think about
execution, not just theory, and that's why I've been a
little pigheaded on this issue.
MS. BARTIROMO: But you know, backtrack a couple
of years when we were sort of in the throes of the
financial crisis. Do you not believe that the Federal
Reserve was really needed in a big way?
MR. FISHER: Sure.
MS. BARTIROMO: I mean, you've got -- you had
companies like GE worried that the lights wouldn't go back
on back in 2007-2008. Was it appropriate then?
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MR. FISHER: We put in place what are called
exigent programs under a law that is no longer, Section
13(3) of the -- Dodd-Frank took that away. But what
happened then was different and I did support those
programs. We had a total failure in interbank lending.
The commercial paper market, the most basic instrument of
finance, came to a halt. Asset backed securities marking
stopped. And then we had a money market mutual fund; the
first fund in the United States as you know, broke the
buck.
We are the lender of last resort, all central
banks are. We had to create these programs to step in,
recreate those markets, get them going again -- revive the
patient and when the patient was ready to get off to say I
want to walk, which it was, we got out of that business.
And again, this is very unusual in government. We not
only did what we said we were going to do, very rare in
government, but we made money for the taxpayer. And then
we closed them down, extremely rare in government. We
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started something and closed it down.
So those were special programs. I think it's
noteworthy that under Dodd-Frank, the new legislation, we
will no longer be allowed to do that unless we do it on a
very broad scale, which raises the bar rather than dealing
with these specific micro components of each one of those
marketplaces.
MS. BARTIROMO: I think you make a great point
by saying, you know, $3.6 trillion of cash on balance
sheets; when you've got all this sidelined money, why are
we adding more to it?
MR. FISHER: Right.
MS. BARTIROMO: Get these companies to move that
sidelined money, put it into the economy. So what do you
think will be the best way to get that money moving again?
Talk to us -- and I recognize that you are focused on
monetary policy, not on fiscal policy.
MR. FISHER: Right.
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MS. BARTIROMO: But from your standpoint, if not
monetary policy, then what? What is it going to take
whether it's tax policy, energy policy, I don't know, to
actually get managers of businesses to add heads to the
payroll and get that money moving again?
MR. FISHER: I'm going to ask my assistant to
put up a slide which shows by Federal -- well, let's go
back to 1990. And we're going to skip forward on a bunch
of these things. I hope you'll forgive me for being
parochial, but I think there's a lesson here. This shows
total nonagricultural employment over 22 years. Now why
do we say non-ag employment? This is a standard way of
measuring employment. Agriculture represents 1 percent of
the U.S. economy. We're big, but it's 1 percent, and 1
percent of our workforce. And typically, because it's
seasonal, that's taken out.
This is 22 years of growth, employment growth --
and of course, I wouldn't show you this chart unless Texas
were at the top -- but look at the difference between
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Texas and New York. Over 22 years, New York and
Massachusetts have a total job growth -- this isn't
compounded annually -- total 4 percent. And look where we
are, we're at 54 percent. We have compounded -- if you
see the black line, the U.S., at twice the rate of the
United States.
So we're growing our workforce at 2 percent, the
United States -- a little over 2 percent, United States at
less than 1.5. Why? I would argue that at the margin
under both Democrats and Republicans in the Governor's
Mansion, under Ann Richards for example, and under
Governor Bush, and legislatures that are Democrats and
Republicans, we have just made ourselves more business-
friendly. We have a tax regime that of course, has no
income tax. We have a regulatory environment that some
people may object to, but it is more business and job-
friendly, and people have been attracted and I could show
you charts that show the correlation between investment
that flows into Texas and our job growth.
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That tells me -- let me add one other thing. We
have the same monetary policy as the rest of the United
States. Same interest rates are paid on mortgages, same
on C&I loans, commercial industrial loans. Consumers pay
the same rate to borrow. Why are we outperforming the
rest of the country?
It tells me that at the margin, what we do on
fiscal policy has an impact. But that's at the state, and
incidentally, we have a legislature that meets for 140
days every 2 years. Now, there's some people who wish it
was 2 days every 140 years but I don't think we get there.
Fiscal policy of the United States is a dominant
influence, even bigger than state policy. And I'm
convinced, since we all have the same monetary policy,
Texas, California, Illinois, New York, Massachusetts that
if we had a differentiation here of more pro-business, pro-
growth, fiscal policy on the spend and tax side, then we
would probably have much greater economic growth. And I
think this underscores the point.
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MS. BARTIROMO: More business-friendly approach
is what's happening in Texas. How can we look at that
approach and emulate that on a national level? What kind
of policies might actually move the needle in terms of
making that --
MR. FISHER: Well, again, that's where I want to
be careful because I think it's important for our elected
officials to make that decision. They had the power of
the purse and I'm talking about the Congress; people
forget this. Presidents come and go, but Congress is
there repeatedly. And it is the Ways and Means and other
committees that control the purse.
Under Democrats and Republicans, what they have
done is they have created over time an enormously
difficult environment, obviously in terms of our growing
our economy and also recovering from the huge setback we
experienced. So I'd like to see them -- whatever they
think is appropriate. It requires short-term confidence,
but also requires long-term reinforcement of the fact that
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we're not going to go the way of the European countries,
particularly Greece, Spain, Italy. We're not going to get
stuck in the Japanese trap.
Maria, I look at all this excess cash sitting
around the world, it's not only here in the United States,
we have it everywhere. And I say I want it all for my
people. I want it for America. I want it for American
workers. And we now have to live in a different world
than we lived before. We live in a globalized world. We
won. We won the Cold War. The Wall came down. The
bamboo curtain is peeled back. We don't kill the
Vietnamese anymore like when I was young, we were sent to
war.
We now sell their products. Every American
baseball cap or actually golf cap made -- the little
American flag on the side, almost every one of them is
made in Vietnam. Imagine that. We trade with each other;
we buy each others securities, et cetera. So we now have
competition for capital and competition for job creation.
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This is not a bad thing. It's a good thing. This is what
we wanted. But now we have to create a tax, spend fiscal
regulatory regime in the context of outcompeting others.
And therein lies the problem.
MS. BARTIROMO: Do you expect that to happen?
MR. FISHER: I'm an American. I'm the son of
immigrants. I'm a believer in this country. Of course, I
expect it to happen, but I don't think it's going to
happen easily. But I can tell you one thing that would
make it worse is if we just run the printing presses at
the Federal Reserve. My strong opinion is that that would
be another disabling or confusing factor for businesswomen
and men and it would frighten them.
And I think we have to be very careful. We are
pushing the limits in my opinion, and I don't want to add
that as another factor of uncertainty and very importantly
Maria, if you're an elected official, it's much easier to
say, oh, just go print the money than make the tough
decisions of how we're going to cover our bills, what's
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the right tax regime, where do we cut spending. Look at
this farm bill discussion that just took place, very
difficult stuff. If you feel the Fed or the Central bank
is just going to print your way out of it, let them do it.
MS. BARTIROMO: Well, if you keep printing money
though, aren't you basically giving legislators, giving
Congress, the White House, sort of a way out, an easy way
out, not to make the hard choices?
MR. FISHER: Yes, yeah. I believe that.
MS. BARTIROMO: Yeah. You mentioned Europe, and
I know you've spoken about Europe. You gave a speech on
Europe recently. I want to ask you about Europe, because
the ECB is in a similar position, printing money.
MR. FISHER: Right. European Central Bank.
MS. BARTIROMO: The European Central Bank. So
what are your thoughts on how that plays out and how
worried should we all be about the European problems
impacting the U.S.? You said moments ago, 13 percent of
exports.
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MR. FISHER: It's a market for us. It's not an
unimportant market. Obviously, it's 13 percent of what we
sell. You have to sort of go through the entrails of
those numbers, because a good portion of that goes to
Germany and the bigger countries rather than the so-called
peripheral countries. Although 3 percent goes to
Rotterdam, and you're not sure how it's distributed. I
mean, it would take a lot of work to figure that out. So
it's a market for us.
Secondly, we worry about the psychological
contagion. I think our banks and our money market funds
and so on have reduced their exposure significantly. One
of the reasons they had their exposure is because we have
a zero interest rate policy at the Central Bank, the
Federal Reserve. It's very common for people to reach for
yield and they put a lot of money in France and elsewhere
to increase the yield on cash. That's now been pulled
back significantly by the money market funds.
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So there is that risk of psychological contagion
and the real issue is a European issue; how they're going
to get out of the trap they've set for themselves. They
don't have a united fiscal policy like we do. Well, let
me be less general. We have a problem with one Congress.
They have to deal with 17 in the euro currency zone, and
27 in Europe.
MS. BARTIROMO: Do they deal --
MR. FISHER: So the European Central Bank, which
is a new institution doesn't -- we have been in business a
100 years. We're the third central bank in the history of
the United States. We have some experience now in dealing
with this. This is all new to them, and I think Mr.
Draghi and his predecessors are really severely
challenged, but they're doing a very good job. And there
are limits again given the nature of the fact that the
Germans have a dominant role, have a natural phobia for
inflation; that's in their DNA, as to how far they're
willing to go. John Maynard Keynes said that it's much
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quicker -- much easier for markets to get rational than
for sovereign powers to get rational. And I think it's
going to take some time. That's going to be a very slow
heal as well.
MS. BARTIROMO: The numbers are really
devastating.
MR. FISHER: Have a nice day. It's -- also --
MS. BARTIROMO: We can show your chart of the
numbers in Europe, in terms of unemployment.
MR. FISHER: Can you just put that up?
MS. BARTIROMO: I mean, you've got Spain at 24
percent, right?
MR. FISHER: Right.
MS. BARTIROMO: really Greece
MR. FISHER: Look at -- you can see Greece, the
euro area. The thing that worries me a lot if you look at
-- it's hard to see, there's just so many things on here.
But the Pacific census division, which is California and
the Pacific coast states basically have the same
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unemployment rate as Italy, and that's where we're weakest
in the United States.
MS. BARTIROMO: California.
MR. FISHER: Well, California is the big daddy
or the big momma of that group. But it's up and down the
coast, and that's where we're very, very weak. It's our
highest pocket of unemployment.
MS. BARTIROMO: So would the approach we're
talking about, business-friendly, ensuring that businesses
participate in the economy, spend money, would that also
relate to what we're seeing here in terms of getting their
arms around these very, very severe unemployment rates.
MR. FISHER: Well, again, we have challenges.
We have new participants in the global economy. It's not
just -- when I was assistant to President Carter, we had a
G6. And what really counted was, what does the U.S. do,
what does Japan do, what does Germany do -- with all due
respect to our Canadian friends and the Italians and so
on. Now we have significant players in China and India
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and Brazil and Australia and others.
So again, I think the whole world is going
through a process of needing to modernize and reboot
fiscal policy as we develop new institutions like the
European Central Bank. But we have a new world to compete
in and also we have this incredible force that's come from
cyberspace, and the reallocation of the specialization.
These are big issues, and I think all governments are
dealing with it; the Eurozone as well as the United
States, and these emerging countries as well.
MS. BARTIROMO: But in terms of the debate,
austerity versus stimulus, this is the debate that they
are living with every day. And in an environment where
you've got 24 percent of the country of Spain --
MR. FISHER: Imagine.
MS. BARTIROMO: -- out of a job and unable to
get a job, do they need stimulus or should they stop
spending, austerity or growth?
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MR. FISHER: Tough issues for their lawmakers,
for their fiscal policy makers. You have to bring
unemployment down in the short term, but reassure the
markets in the long term. Remember James Carville's great
line that if he could come back as the most powerful
person, it wouldn't be the Pope or the President. It
would be as a bond market.
And you know, the trouble with Spain now, of
course, it's very difficult to fund their debt. Their
short-term rates are extremely high. Greece's are
extremely high. Markets are bloodless and brutal, and you
have to, of course, meet up to market expectations if you
expect to finance yourself in the public market place.
Therefore, you have to have long-term promise, but you
also have to correct your short-term promise. I, you
know, have great sympathy for these lawmakers and what
they're trying to do, but the answer is not simply to use
the monetary tool. We are necessary, but not sufficient
and that applies to us in my opinion very strongly. It
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also applies to the European situation or any other
country.
MS. BARTIROMO: Do you think that your
colleagues will follow this advice? I mean so far every
time there's a Fed meeting and Mr. Bernanke, who I know
you have the highest regard for --
MR. FISHER: I do.
MS. BARTIROMO: -- you know, speaks about this
economy, we continue to see speculation that there will be
more stimulus. So you have this view -- you've been
voicing this view, but do you think this view will
materialize or will we still see a printing of money?
MR. FISHER: Well, first of all, I'm not alone.
There are others; they can speak for themselves. I only
speak for myself. You may have noticed that Mr. Lacker
dissented in his last formal vote. There are other
members of the committee who argue, sometimes as I do and
sometimes from a different approach, with the same bottom
line. And look, nobody on that committee, hawk or dove,
3434
ever wants to cross over the line. We know.
And the chairman has been quite outspoken about
this. No amount of monetary accommodation, he said, can
substitute for what's needed from our fiscal authorities.
And we have to be mindful of those limits. So we can't go
on forever like this. It would be imprudent for us to do
so. We need to see some tough decisions made by the
Congress of the United States.
MS. BARTIROMO: We know that, you know, Europe
is where it is and I know that you've spoken a lot about
China as well. When I get into your speech that you made
recently about China, because you're saying that global --
that's slow down -- and China has been the engine of
growth for the world, and I'm going to get to that. But
let me just ask you this. What are you and your
colleagues worried about so much? I mean, not you,
because you are saying, you keep pushing back on all this
stimulus. But why not just say - we've done enough. Now,
its' up to you, now it's up to the fiscal side of things.
3535
What are they so worried about?
MR. FISHER: Well, it's our tradition that we
don't speak for each other. I only speak for myself. You
just stated my argument. I think we've done enough. In
fact, I would argue we've done too much, but that's not --
that's a fine point. The real tough decision making --
and I then I think we should drop this subject -- has to
come from the people that we elect to tax our money and to
redistribute it, and to do so in a way that incents
people. Whether you are a liberal or a conservative is
not the issue; how do you incent people to put our people
back to work?
And we know that we have the liquidity out
there; we created it at the central bank. And businesses
have saved and saved and saved. So again, ask yourself
everything you do; how might I incent someone to go out
and hire an American without resorting to protectionism --
and these things we know are so dangerous -- and get your
act together and get it done, grow up.
3636
MS. BARTIROMO: China has been obviously a focus
of attention for sometime right now. It has even created
a debate about whether America is losing its mojo, and
other countries are growing much faster. How severe has
the slowdown in China been in your view and what are the
implications of that giant engine slowing down?
MR. FISHER: Just a little background here; I've
been going to China since 1979. I was part of President
Carter's team that negotiated the settlement with Deng
Xiaoping. And I remember in a meeting we had with Deng
Xiaoping his saying that they would grow at 8 percent per
annum. Now if you know the old Chinese system, that's
remarkable, because the abacus is a function of 7. So, we
couldn't figure out how he came to 8 percent compounded.
He just pulled the number I guess out of the air. They
have done that or slightly better.
They're now at a point -- I don't know if it's a
complete stall point, but what an economist would call the
middle income trap. They've moved up the value added
3737
ladder. They supplanted the lower value added part of the
economy, massive amounts of women and men put to work,
picking up the common labor and those kind of -- and now
they're moving up the value added ladder, the question is
the transition and then what incents their people to make
that transition. You moved a lot of people from the
interior to the coastal areas. They exported like crazy,
cheap products at first and then better products and
better products. But right now it seems that they are
slowing down, and the real issue is going to be how do
they make that transition to the higher value added area,
and how do you do it with a form of government that they
have.
I've been to China so many times that I cannot
remember, and I think you know that I was made in China.
My parents left Shanghai just at the last moment I was
born, a couple of months later after that. So I've always
had an interest in China. I follow it very closely.
There is a certain level of official corruption and
3838
inefficiency. The accounting numbers are very
undependable.
My druthers tell me that they are probably
growing at less than they state. But the real issue now
is how do they go -- having gone from a period of Deng
Xiaoping onward, basically from 1978 onward, 1980 onward
to now, and make the next leap without liberalizing their
society and making it possible for not just the
princelings and those that are favored by state owned
enterprises and so on, but for the people to participate
in that economic miracle.
They have done a great deal. I'm very impressed
with what they've done. But I think this next step will
be the most difficult of all.
MS. BARTIROMO: Well, moving from, what, an
export led economy to a consumer led economy obviously
can't be easy and it's a long-term process. Where are
they, do you think, in that process?
3939
MR. FISHER: They're just beginning. They have
still, as we do, by the way, several too big to fail
institutions, state owned banks that need to become much
more efficient and much more commercially and
instinctively driven, and they have a real estate bubble
that they need to slowly deflate. They seem to be going
about that. And then the question, too, is can you have a
consumer society when you have such restrictions on social
behavior.
I don't know the answers to these questions, but
I think that's the challenge the Chinese people face.
MS. BARTIROMO: Is this one of the worries that
we should be focused on in the United States that China is
slowing faster and more than we really know or expect it?
MR. FISHER: Well, I mean we're worried about
the margin -- again, to go back to my part of the Federal
Reserve district, which is 96 percent Texas, parts of
Louisiana and parts of New Mexico. We're the biggest
exporting state; we pulled ahead of California 7 years ago
4040
and the Panama Canal will make us even more prominent in
the Gulf area. And our fastest growing market has been
exports to China; a lot of electronics, a lot of high-
tech, of course agriculture products and so on. And
chemicals, huge, because we have 60 percent of the
refinery business of the United States in my Federal
Reserve district.
So we want them to be growing as a market. As
you know, they own a pretty good pool of U.S. treasuries.
Not an important -- they have helped us keep interest
rates down. They've been aggressive buyers; they continue
to be buyers. So it is important we think, I think, for
the world and our own economy that they continue to grow
and that they get through this little soft patch they're
going through. They are still growing at better rates
than we are, obviously, but they have a lot of mouths to
feed.
I remember when we were with Deng Xiaoping, we
asked him, "How many people are in China?" And he said at
4141
that time 900 billion. And an aide leaned over and
whispered, he said, "I'm sorry, I was wrong, 1.1 billion."
So, 900 million and 1.1 billion, just a little rounding
error.
MS. BARTIROMO: Yeah.
MR. FISHER: It's amazing.
MS. BARTIROMO: I know.
MR. FISHER: So we hope that they will make this
transition, have a healthier economy. It's good for the
world. That's what we want to see.
MS. BARTIROMO: I remember in Hank Paulson's
book when he wrote about how China and Russia had a
conversation, the leaders of China and Russia during the
financial crisis to try to bully America and -- into doing
what they wanted to do, otherwise they would start selling
some of those holding aggressively. Do you worry that
they could bully us into, you know, forcing interest rates
up or forcing America to do something given that they do
own so much of our securities?
4242
MR. FISHER: No, I think they'll invest
according to prudent investment measures. I wouldn't want
to be the head of the Bank of China if I took a loss on my
portfolio or if I missed something. So -- and again,
we're the most attractive place for sovereign credit risk.
And you know, I just don't hear any more that the Euro
system is so much -- this was a fad, an intellectual fad
we went through for about a decade, actually starting with
Mr. Kennedy's book, the scholar of Yale, that Europe was
going to take over from the United States. We don't hear
that anymore.
MS. BARTIROMO: No, we certainly don't hear
these days --
MR. FISHER: And you don't see it in the
marketplace either.
MS. BARTIROMO: Right.
MR. FISHER: So I think they will invest
according to prudent standards and I don't worry about
that. In fact, I take comfort in the fact that they buy
4343
our treasuries. It's a good thing. It shows how
integrated the global markets are, and I believe they will
follow market discipline just as Singapore will or the
Swiss will or the Canadians or the Mexicans or anybody
else will. That's what we do these days.
MS. BARTIROMO: Switzerland and Singapore are
among the most competitive countries out there, small
countries, but competitive.
MR. FISHER: Uh-huh.
MS. BARTIROMO: Do you think that's because of
the business friendly approach there as well?
MR. FISHER: There was a piece the other day in
a newspaper; Singapore has more millionaires per capita
than any place else. When you think about it, it was a
swamp when Lee Kuan Yew -- and people have some dispute
about the way he managed, but when he became the leader of
Singapore -- it wasn't very long ago. It was in our
lifetimes. So -- but these are small entities but very
strategically smart. The Norwegians, that's probably the
4444
richest society in the world. But that's due to one
product, energy. But also prudent management.
And I think there are examples -- I can't really
take too much comfort in these smaller countries. We are
unique in America. We are huge. We lead the world. We
just have to figure out a way to continue to do this, and
it's hard to take examples from these smaller countries.
However, we do know that capital is attracted to them and
we have to remind ourselves if we are going to create a
tax regime, it has to compete with people like that. And
there are plenty of them around the world, and I think
there will be more so particularly as the Europeans try to
figure their way out of their current trap.
MS. BARTIROMO: Let me switch gears, ask you a
little about regulation. Today, of course, we wake up to
a story that -- and speculation that the trading loss at
J.P. Morgan could be as high as $9 billion. So we are all
trying to figure out really what is the value of this loss?
Is it $2 billion, $5 billion, $9 billion? What's your
4545
take on that?
MR. FISHER: Well, I'm going to ask my
colleagues to put up a little chart here in terms of --
you're talking particularly about the large institutions.
But let's first -- stop right there, go back, go back.
You asked me about regulation first, so let me show you
this little pie chart from the Harvard Business School.
This was a study done by Roger Porter, a very
good, brilliant economist and one of his colleagues, and
what it does is it surveys living HBS graduates who are
all in pretty good positions and the CEOs of companies as
to what inhibits them from further job creation. It's one
of the better studies done.
And look at those two big pieces in the pie,
regulations and taxes. And then what is very worrisome to
me is that middle section on talent. I don't see a
monetary policy up there that could be part of
macroeconomics, but over half of the inhibition to hiring
new people are regulation, talent and taxes. It tells you
4646
a lot. These are people that operate businesses that hire
men and women that advance our society through the private
sector. So that is -- it goes to regulation, which you
ask. Now with regard to, you just mentioned J.P. Morgan --
that has to do with what I consider to be one of our
biggest problems, which are institutions that are
considered too big to fail.
And we have done a lot of work at the Dallas Fed
on this. I would urge you to go to our website, by the
way, because we take a rather radical view. Our view
which has bred a lot of analysis and just an unfortunate
conclusion, in that we think the least worst option is to
break up these large institutions.
We put this out with our annual report in March.
We have since got an awful lot of play. Just on -- two
days ago, Mr. Purcell, who ran Morgan Stanley had an
incredible article in the Wall Street Journal and walked
through a market solution that shareholders should be
demanding greater value from these very large
4747
institutions. You happened to mention one of them but
without picking on them by name, these are inhibitors, by
the way, of the efficiency of monetary policy. If we're
so worried about whether someone is going to fail or not
management becomes worried and they are also going to do a
defensive crouch.
So we have a cultural change that I think needs
to take place. We have five or six institutions that
dominate well over half of the deposit base in this
country. It's worse after Dodd-Frank than it was before
Dodd-Frank, and I do think without going into that
specific transaction -- I want to show one more slide of
someone who I respect enormously who just passed away,
Anna Schwartz. And she basically says and had said, and
this was quoted in her obituary written in the Wall Street
Journal, that bottom line, basically that people that make
bad decisions should go out of business and they should
pay the consequences, be punished and those who make good
decisions should be enriched.
4848
We have it backwards. And I do believe all this
exercise about too good to fail that came out of Dodd-
Frank won't do the trick, and in fact it enshrines too big
to fail institutions, and my bank takes a totally
different view.
MS. BARTIROMO: Why is it worse now after Dodd-
Frank, in terms of too big to fail?
MR. FISHER: Well, part of it is because we did
have a crisis and we allowed certain institutions to be
blended into others. You know what they are. And also,
there's an implied subsidy. If you're too big to fail you
as a depositor will feel or as a shareholder or really as
someone -- you will feel more comfortable. They have a
funding preference. And if you look at the cost of funds
of these large institutions compared to a local bank here
in Aspen or a regional bank in Dallas, they are much lower.
So it's an unfair subsidy. And if you have a
subsidy, you're going to do a little bit better than the
competition. So I think we need to deal with this thing,
4949
and I would add is one more note. One of the reason Japan
in my opinion, another country I spent a great deal of
time in, was -- could not come out of the crisis that they
came out despite abundant liquidity provided by the
central bank and interference of many more markets than
we've been involved in at the Fed is because they never
cured the problem at their too big to fail banks. They
still remain inefficient. And I think that sort of
clogged up the monetary transmission mechanism. So this
is an issue I think we really have to deal with.
MS. BARTIROMO: You know, putting one -- I'm
going to open it up to questions in a moment there, so I
hope you will ask Richard your questions and give us your
insight. But putting sort of one specific name aside,
J.P. Morgan with the trading loss there, the derivates
portfolios out there, how worried should we be that there
are all these unknowns in some of these derivates
portfolios and that it could go anyway at any bank?
5050
MR. FISHER: Well, what I worry about is
protecting the depositors and not spending taxpayer money
to bail people out who get in trouble. We have a system
where we provide for insurance for people that want to
safe keep their money. Where do you safe keep your money?
In banks. And really what Sandy Weill figured out, which
was extremely smart, not that he's a bad guy, he
understood the system, was that you could take that cheap
subsidized money and take risk. And one of the things --
Maria, this may be difficult for our -- and sometimes hard
for me to understand, but I look at this as my former
professional life. I managed money; I was a banker.
When you are banker you are much more balance
sheet oriented. When you are an investment banker or a
hedge fund manager like I was, you are income statement
oriented. You really care about what you make every year
and you ramp up your institution to do that. There's a
clash of cultures and these cultures are utterly
completely intertwined in these large institutions. I
5151
think the best thing to do is to separate those cultures.
And I'm not alone. Even Phil Purcell, who ran Morgan
Stanley and Anna Schwartz and others who are much more
reputable than me have basically concluded the same thing.
I'm not saying we go back to the law that inhibited the
two cultures -- not inhibited, but separated the two
cultures. But I think we're going to have to have
something like Glass–Steagall again.
MS. BARTIROMO: Glass–Steagall meaning you've
got to separate these businesses?
MR. FISHER: A Glass–Steagall 2.0.
MS. BARTIROMO: Yeah. So in other words, the
top banks in the U.S., J.P. Morgan, Bank of America, Citi
they are too big to fail?
MR. FISHER: They are considered too big to
fail, yes. And they're not alone.
MS. BARTIROMO: Questions from the audience?
Yes, sir?
SPEAKER: Has any --
5252
MS. BARTIROMO: There's a microphone right
behind you.
SPEAKER: Has any serious thought been given to
monetizing the debt at a time when inflation is very low
and the national debt seems at least very difficult to
resolve? Is that something that your people have studied?
MR. FISHER: It's something we want to avoid,
that's the road to perdition. If you monetize the debt
you are on the road to hyperinflation. We have seen this -
- we know this historically over and over and over again.
So if you mean we should just continually print money ad
infinitum nobody thinks that way that I'm aware of in my
committee, and I certainly don't think that way and I
would object to it. You should never monetize the debt.
SPEAKER: It's more about getting the debt down
to a more manageable level. And again, if you were ever
going to do it, it would be at a time when inflation is
low and our industries are operating below capacity; there
would be the possibility at least of being able to do it.
5353
And my thought, really, is more: it may be the only answer.
MR. FISHER: Well, if it's the only answer we've
gotten ourselves into a hole we'll never get out. Again,
the only way to deal with our indebtedness and our
unfunded liabilities -- and I want to give you an example
of an unfunded liability, Medicare. We at the Dallas Fed
calculate that the present value, that is if we paid off
everything that's been promised to the American people
under Medicare today, $90 trillion. That's what your
legislators have done to you.
Should we print that money or should we have
them corrected? To me every time you see a central bank
in history who has gone down the path of monetizing
obligations to that extent, you have ended up with
hyperinflation. This is the history of the world. So I
don't believe in monetizing the debt. Already we at the
Fed own a big portion of treasuries. I mentioned earlier
we're up to -- will be up at the end of this program,
almost a third of the longer term maturities of treasuries
5454
will be in our portfolio.
Markets need these instruments because they are
the safest instruments to trade in, and it then interferes
with the proper functioning of markets and the arbitrage
that goes off of those safe investments such as U.S.
treasuries. So there's a practical limit as well as an
ideological limit. I was just giving my own ideology, but
I think there's a practical limit as well.
MS. BARTIROMO: Are you expecting -- a question
right here. Are you expecting an agreement on the fiscal
cliff by the election? What does your gut tell you?
MR. FISHER: My gut tells me that there's going
to be a lot of angst and argument between now and the
Election Day, and again, politicians will use this to
their advantage on both sides of the aisle. I just don't
see any resolution here for quite some time.
MS. BARTIROMO: That's very dangerous, isn't it?
MR. FISHER: But you asked -- that's my personal
opinion.
5555
MS. BARTIROMO: Right, of course, that's your
personal opinion.
MR. FISHER: That's not the Federal Reserve.
It's not the Dallas Fed speaking.
MS. BARTIROMO: We understand.
MR. FISHER: Yeah.
MS. BARTIROMO: We understand. Yes, sir?
SPEAKER: (Off-mic). I have a question of
motivation regarding the lack of investment --
MR. FISHER: But it's a good question so far.
George, you can take the slide off.
SPEAKER: -- regarding the lack of investment by
corporations. It appears to be a systemic problem because
slowdown, yes, and uncertainty, yes, but corporations have
been dealing for a long time with coping with difficult
situations and uncertainty. This is what management is
paid for.
MR. FISHER: You are exactly right.
5656
SPEAKER: But on the other hand, what we -- I
think what we can see is a tremendous focus on short-term
results, a lack of long-term perspective. Because if you -
- if corporations will take a hit short-term in terms of
profitability, they could make investments long-term. And
I think the big danger of the current situation, which
hasn't been really discussed but I would be interested in
your perspective, the big danger is that innovation may
suffer badly because if the investment is not happening
where will the innovation come from on a broad basis?
So I believe it's a real systemic problem, where
it needs a very comprehensive perspective including the
markets, how the markets react, the pressure on
corporations for short-term results, the fiscal policy, et
cetera, et cetera.
MS. BARTIROMO: It sounds like the U.S., by the
way --
MR. FISHER: I was going to say --
5757
MS. BARTIROMO: -- taking a hit on monetary
policy in the short-term.
MR. FISHER: Yeah, it sounds like the federal
government of the United States, short-term gratification
and not thinking about long-term consequences. I disagree
with you in terms of the way businesses operate.
SPEAKER: You disagree?
MR. FISHER: Absolutely. I do think that --
I've been on compensation committees of different publicly
traded companies and I do think we may have distorted
decision making, and you may be right in terms of
correcting that cultural bias. But any good business
woman or business man thinks long-term. I don't want to
embarrass anybody in this audience but there is someone in
this audience who has built one of the great auto dealer
franchises in America. I know this family like brothers
and sisters. They are always thinking very long-term,
even though they make a good deal of money short-term.
And I don't see how you can succeed as a business person
5858
unless you are plotting over a multiyear framework.
Now the way the trading markets work and the way
a lot of what Maria comments on every single day and is so
good at, you know, we tend to think that -- you know, we
are just -- every business person it seems they're just
worrying about the price of their stock every 30 seconds
or nanoseconds. I don't know many business operators that
operate that way, either here or anywhere else. There are
some --
SPEAKER: Quarterly focus.
MR. FISHER: And quarterly focus, you're right,
is awfully myopic. But you know what? You can work to
that mark but if you don't perform over the long-term,
you're not going to keep your job. But I'm a public
servant. What I'm really worried about is the cultural
you just expressed; the proclivities you just expressed
are rampant with our fiscal authorities. Short-term
gratification, digging long-term holes, and I'd like to
see that corrected. And there's no way to correct it
5959
through monetary policy.
We too have to think long-term. And this is one
of the things I think is great about the Federal Reserve
and a good central bank; we have to think about the long-
term consequences of what we do and when we sit around
that table every discussion we have is the long-term
consequences of what we're doing. What will be our exit
strategy? How will we get out of this 10 years, 5 years
and down the road or at the right time when it occurs?
I wish that our elected officials had thought
that way. I begin -- I believe they are beginning to
think that way, and now they have to make the tough
decisions to implement that new thought process.
MS. BARTIROMO: So what are some low hanging
fruit solutions as it relates --
MR. FISHER: You keep trying to get me in fiscal
policy --
6060
MS. BARTIROMO: No, no, no, I'm not trying to
get you to comment on what, you know, this administration
or another administration should be doing.
MR. FISHER: Right.
MS. BARTIROMO: Just trying to get some
sensible, practical ideas on the table as it relates to
social security, Medicare and Medicaid where we are
spending so much money on these programs?
MR. FISHER: You do better when you collect more
taxes and you collect more taxes when people prosper.
When business prospers, they pay more taxes. We know --
and this is just one area that's come to mind, and again,
I have no fiscal responsibility. I'm not elected by the
American people. I don't represent anybody. I'm a
central banker and I do my best in my profession.
But -- and I'm not elected by the American
people. But were I elected by the American people, one
thing I would be thinking about is, again, how do I get a
lot of that money that's outside the United States to come
6161
back and employ Americans. Well, that's one area under
tax law --
MS. BARTIROMO: That's tax policy.
MR. FISHER: -- where you can make significant
changes. The specifics of how you do that is up to our
fiscal authorities. But I would like to see all this
liquidity worldwide come here.
MS. BARTIROMO: And you would like to see the
discussion happen?
MR. FISHER: Absolutely.
MS. BARTIROMO: Yeah.
MR. FISHER: And I haven't heard that. The one
thing I don't hear about when we talk about correcting our
deficits is funding our unfunded liabilities, which are
enormous that aren't even on our balance sheets is doing
it in a globalized world. We are no longer an island. We
have to compete against others for capital, for job
creation and I think our leaders have to think in those
terms. It's a new world and we can't just do this in
6262
separation.
MS. BARTIROMO: A question there, all the way at
the window.
MR. FISHER: This fellow right here.
MS. BARTIROMO: Oh, I'm sorry. Yes, go ahead.
SPEAKER: You may have touched upon a little bit
what I was going to ask, but when you sit around the table
and you think about all these things as austerity and
stimulus, what do you think about ways to balance the
budget and how do you feel about it, because on the hand
when are stimulating you're creating more -- putting more
money into the marketplace, which may or may not help
balance the budget? It may create more debt more
spending. So what do you think around the table about
balancing the budget? Does the governors have any
thoughts at all?
MR. FISHER: Well, first of all, it's not our
job to balance budget. We're the monetary --
6363
MS. BARTIROMO: It's not just me who is bringing
up this stuff. Thank you very much.
MR. FISHER: But I will tell you that we do have
discussions of what the likely impact of government
spending patterns will be on the economy. The old basic
simple formula that you learned if you took high school
economics was our output was equal to government plus
investment plus compensation plus or minus net exports,
the sort of a four variable equation.
The 'G' is government, and that's a big part of it.
So of course we have to do our own best guesstimation. We
have a staff briefing. We have our own staff to brief us
in terms of where we think government spending and policy
will go and how it's going to impact economic growth so
that we can manage to that economic growth. But in terms
of making decisions about or discussing how we would
correct the problem, again that's not our purview. That's
what we elect Congress people and senators to do.
MS. BARTIROMO: Yes, sir?
6464
SPEAKER: So two questions. Do you have a view
that you could share as to how we should reform the
housing finance industry in this country? And then
secondly, how do you feel about the fact that we have
three banking regulators and how effective a model that is
to regulate the banks in this country?
MR. FISHER: Well, let me address the second one
because the first one, again, gets into the issue of the
people that make the laws that govern those institutions,
and that's not my job. I think it's healthy to have
freedom of choice if you are a bank, that is if you are a
community bank you can be a member of the Federal Reserve
system or you can be FIDC overseen as long as the
regulators work in parallel with each other, which we do
or we try to do. So I'm not as worried about that as long
as we move all in the same direction.
And there is a very conscious effort to do that
now. Those that are the senior policymakers on the
regulatory side spend enormous amount of time together.
6565
We at the bank level where we have the troops that go out
to supervise and regulate banks, we have over 600
institutions we supervise and regulate in my Federal
Reserve district under my bank, at the Federal Reserve
Bank at Dallas. We are in constant contact with the other
regulators as well to see what we might do that would
encourage a bit more effective transmission of monetary
policy.
So I don't have a problem with having a couple
of regulators. Dodd-Frank did do one good thing, which is
it sort of tightened that circle a little bit. It put the
thrift holding companies under supervision of the Federal
Reserve and it gave us some broader powers, originally it
did not intend to do so. It intended to diminish our
powers.
And if I can give you a little plug here, it was
thanks to a Texas senator, Kay Bailey Hutchison that that
whole process was reversed and indeed the Federal Reserve
ended up with greater supervisory powers over a broader
6666
purview of financial institutions. I think that's a good
thing.
MS. BARTIROMO: The Fed has said that rates are
going to stay at very low levels until 2014. I know you
said to me today rates will start moving when the economy
starts improving. But realistically speaking, would you --
MR. FISHER: That's good alliteration.
MS. BARTIROMO: I'm sorry?
MR. FISHER: That's good alliteration, but go
ahead.
MS. BARTIROMO: Thank you. Thank you very much.
When would you expect rates to actually move? I mean,
what's your gut -- I mean, '14 --
MR. FISHER: I never get into the business of
forecasting interest rates. I was against the 2014 date
for the following reason. Just putting a date out there
isn't the issue. That's what we call time contingent.
What I'm worried about is state contingent planning,
meaning what is the state of the economy, what are the
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dynamics, what's happening here. And by just picking a
date -- it wasn't done, by the way, thoughtlessly, it was
done with great deliberation. But it seemed to me that as
you approach that date, you might want to expand upon it
or contract it and that would create a whole new impulse
in the marketplace. And it just seemed to me to be not
the way to make monetary policy.
The way to make monetary policy is to make it
based on the state of the economy and the dynamics in the
economy, not just to pick a date. It was done to signal
when it was done that we would be in the low interest rate
environment for a long time, and I expect us to be in the
low interest environment for a long time.
MS. BARTIROMO: Let me wrap up -- one more
question here.
SPEAKER: I was going to -- what is the downside
-- so forget that there is a date, what is the downside to
a prolonged period of low rates? Are we encouraging
citizens to take inappropriate risk? And where do you see
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the next bubble because this is an extreme at zero percent?
MR. FISHER: That's a very good question. There
are costs and benefits to everything you do. One of the
costs of a low interest rate regime is that those that
played by the rules, those that saved, people that are
getting older like me that shorten the risk and came in on
the yield curve and just had their money in CDs and so on,
which is what you are trained to do if you are a prudent
saver, have taken it in the neck because they can't earn
anything on their retirement savings. Theoretically, what
you do when you come down to zero interest rates, what's
called the zero bound, is you encourage people to take
more risk.
A lot of people, however, are afraid of taking
greater risk because they've seen what happens in security
markets and it does run counter to the logic of what you
should do as you age or as you should be constricting your
risk. So that was one of the cost. We are well aware of
it. I articulated that quite forcefully. We have to deal
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with pension fund exposure as well. You know, a lot of
pension funds, particularly the state and local ones, the
government ones run on return assumptions that are sort of
no longer attainable. They're going to up-up, you know,
is put more money into the system. How do you that
without depressing the economy even further at the state
and local level?
Corporations have to do that, those that have
remaining defined benefits plans. So there are several
costs that were involved that came from this very low
interest rate policy. And then there is the issue of
whether you are encouraging speculation or not. I'm going
to make one other point which may upset some people in the
room. But I worry -- one of the things I worry about is
we might be party to making the rich richer and we're not
helping, as I put it, the Homers and the Marges. We're
helping the Mr. Burnses by low interest rate policy, and I
worry about that. That's a note that we ought to conclude
on.
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MS. BARTIROMO: Okay. Thank you very much,
Richard Fisher. Thank you everyone.
(Applause)
MR. FISHER: Thank you.
* * * * *
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