An interesting interview with Dallas Fed president Fisher
Dallas Fed president Richard Fisher, who is known as one of the Fed's 'hawks', but is unfortunately also a fan of the fervent supporter of the 'recent CNBC interview. Now leaving aside the football analogies, we learn here that Fisher is 'trained as a businessman', not a professional bureaucrat.(alas, no relation), has made some interesting comments in a
He says that in a self-deprecating manner, mentioning that he thinks his colleagues 'more knowledgeable'. We would suggest to Mr. Fisher that it is the other way around. We don't think there should be a central bank at all, but since there is one, it would certainly not hurt if there were more businessmen rather than ivory tower academics steeped in Keynesianism running it.
It is noteworthy that Fisher is not in favor of the Fed printing even more money, but he is careful to mention that 'it cannot be ruled out'. And it sure cannot be, with Ben Bernanke at the helm. Furthermore, Fisher himself, as a supporter of the misguided 'price stability policy', regards the bugaboo of 'deflation' as a 'tail risk', which presumably the central bank will have to counter.
He mentions that there is 'enough liquidity' and that businesses are 'hoarding money'. 'There is enough capital', so he says. However, capital is not the same as money. The question is not if there is 'enough' capital out there, but whether the existing capital stock can be usefully employed, and to what extent it needs to be transformed, redirected or liquidated.
The slow pace of recovery
Fisher notes that the economy is not moving forward as well as he would like. Inventory adjustments, and some investment activity have played out, but businesses continue to be stymied. What is most interesting about his comments though is what he has to say about why he believes there is very little hiring and investment going on – especially in the small business sector, which as we know continues to find itself in very bad shape.
In Fisher's words:
“Congress and the government have inhibited growth by creating uncertainty about business costs, Dallas Fed President Richard Fisher told CNBC Wednesday. “We need clarity," said Fisher. "My background [in business] tells me that you can’t eliminate uncertainty, but you have to reduce it as much as possible.” Questions about healthcare expenses, for instance, have kept businesses from hiring new workers, said Fisher, because executives don't know how much it will cost them.
Businesses also have concerns about other costs, such as whether a VAT [value-added tax] will be imposed. "How do you cost a worker?" Fisher said. "Let’s say you run a delivery-truck system. What’s the price of a new delivery-truck driver? You don’t [know]. So how, as the CFO, do you go to your CEO or the board and say, 'I need to budget a new workforce.' And they say: 'What's it going to cost us?' And you say, 'I can’t tell you the answer.'”
It is worth excerpting some of the comments from the summary section of the NFIB's monthly report, as they clearly confirm what Fisher says, and are somewhat more explicit than he is:
“Unfortunately, Washington, D.C. and many state legislatures seem determined to undermine any economic forward momentum for small business owners. And even though small business owners continue to plead their case for policies that will help foster economic growth, many lawmakers are unwilling to listen. Small business owners keep saying that poor sales (“It’s the consumer, stupid!”) is their most pressing problem and the reasons they aren’t interested in expanding are due to current economic conditions and the political climate.
Unfortunately, Congress is fixated on credit and special favors for unionized firms, and that wont sustain or support faster growth. A huge help in moving toward a stronger economy for small business owners would be to “do no harm”. But Congress continues to pass and propose legislation that increases the cost of running a business and create huge uncertainty about future costs. The small business sector of the economy is improving, there is a pulse, but it is weak. Washington is applying leeches and performing blood-letting as a cure. Assuming Washington does not intensify its efforts to “cure” small business, the sector will continue to plod forward as consumer spending picks up and the housing mess continues to correct itself.”
Dallas Fed president Richard Fisher: 'We've printed enough money'. Actually, they printed too much. He rightly bemoans the uncertainty introduced by government's activism.
(Photo credit: Brian Snyder / REUTERS)
Regime Uncertainty strikes
What Fisher and the NFIB are talking about here is known as 'regime uncertainty', an offshoot if you will of Ricardian equivalence, a concept which we have commented on previously. The Obama government was from the beginning hailed in the press as a 'new version of the FDR administration', whose purpose it would be to pursue some sort of 'new New Deal' policy to 'rescue' the economy. This unreflected recommendation in favor of government meddling is unfortunately being taken seriously by the administration, which in terms of its economic policies surely ranks as one of the worst in US history.
In this it is indeed a close cousin to the disastrous FDR administration, which by continuing Hoover's deficit spending policies and even intensifying them helped turn a recession into a depression. If we examine some of the recommendations made by TIME magazine's editors, it is truly cringe-worthy stuff:
|“, so we should understand that government spending creates short-term economic stimulus, which is one reason the Bush-era bubble took so long to burst. But not all government spending is created equal. Obama needs to pump serious cash into the economy in a way that promotes his long-term priorities.”|
Aside from the fact that we are definitely not 'all supposed to be Keynesians now', even if TIME insists this should be so, the idea conferred in this paragraph that 'government spending is fine, just as long as you have a better plan than that attending the previous failure of government spending' is simply nonsense. It is definitely the type of nonsense most mainstream economists tend to support, but it remains nonsense.
It does not matter how 'well intentioned' an interventionist government allegedly is – its deficit spending must harm the economy, due to the fact that the economy is not a machine that can be 'planned'. It is more akin to an organism, with individual human actors the 'cells' of this organism, each one with its own sets of skills and knowledge, and these cells are capable of erecting a spontaneous order in the marketplace that is far superior to any attempt to plan the economy.
TIME criticizes spending that has gone towards 'roads to nowhere' (which incidentally is very much akin to a central recommendation of Keynes to battle recessions, who proposed that the government hire workers to do completely senseless jobs), but then immediately asserts that a 'better spending plan will work'. It promptly supplies the plan, of course.
“To jump-start the economy, Obama needs to spread around hundreds of billions of dollars, and he'd be wise to start with the currently underfunded efforts to restore the Everglades, coastal Louisiana and the Great Lakes; to repair crumbling dams, dikes, sewer pipes and bridges; to promote high-speed rail, light rail and other transit systems besieged by skyrocketing demand; even to accelerate research into renewable energy and alternative fuels. But first he should repeal the old water and highway bills — two of the most popular pieces of legislation on pork-obsessed Capitol Hill — and demand a new approach. He can call it a New New Deal or a Green New Deal, but it needs to be a deal, not just a spending spree. How it would work is simple: the feds would supply cash but only to promote federal priorities.
So funding decisions would be made by technocrats rather than congressional ribbon-cutters — like similarly hyperpolitical military-base-closing decisions — and strings would be attached.”
First of all, an economy can not be 'jump-started'. It is not a stalled car engine. A government 'spreading around hundreds of billions of dollars' – which we note is exactly what Obama has done and is set to continue doing – is an enormous burden on the economy, as it crowds out the private sector, misdirects capital and creates the aforementioned regime uncertainty. No matter how 'simple' it all is, according to TIME, in the end, the private sector must pay for all of it, as the government possesses no resources of its own.
The difference is only that instead of the spending and investment being done voluntarily, and thus reflecting the desires and most urgent wants of consumers, the government's spending is directed according to political priorities and pet projects, most of which comprise a hair-raising waste of scarce resources. You can not 'cure' a maladjusted economy by adding fresh malinvestments on top of existing ones, and yet, this is precisely what government spending does.
The government likes to point to the many jobs it has allegedly 'created' with its spending, often displaying a horrifyingly tenuous grasp of simple mathematics (see Obama Hails New Solar Energy Jobs at Taxpayer Price Tag of $1,333,333 Each ), and without reflecting on whether any of these jobs actually make economic sense. Unfortunately, the failure of these investments to create a sustainable recovery is likely to raise a hue and cry for even more spending. In the meantime, everybody knows that higher taxes and more regulations are on their way. In short, the government's policies are inimical to economic growth on more than one level. This is precisely the regime uncertainty spoken of by Fisher.
Businessmen will not invest while there is an interventionist government in charge that makes 'what will Washington do next?' the most important question entrepreneurs and investors must ask themselves. In this context, we want to point to an excellent article at 'Adventures in Capitalism' written by Kuppy, '', which sheds light on the problem the government's interventionism poses for investors. Here is a pertinent snip:
Now, investing seems to revolve around just one factor.
What will the government do next? Which businesses will they clamp down on? Which will be subsidized? Who will get the next bailout? Will various tax subsidies be increased or eliminated? What new laws are in the mix? How can you anticipate all these changes?
There are no constants any longer. You cannot rely on anything. Everything seems perpetually in flux. The world economy is once again imploding.
Will it be allowed to collapse? Unlikely. When will the next bailout be announced? What shape will it take? Who will the winners be?
That really is the question that everyone demands an answer to. When is the next bailout? Bigger, Badder, More Corrupt — that’s our country’s new mantra.
Which companies will lobby the right congressmen and be included? Which will be destroyed? How do you invest in an environment like this?
Say you look at a company. Do you want a business that’s economically sensitive — or one that has a strong and liquid balance sheet? Are you betting on them printing just a little money — or a full out Weimar style debasement?
What’s the expected tax rate? It’s going up. That’s for sure. Will carbon taxes impact my businesses? What about changes in health care legislation?
There are dozens of issues currently debated in congress. They all impact businesses.
In short, the regime uncertainty that bedeviled the economy under FDR clearly also bedevils the economy under the 'new' New Dealers.
He did what TIME suggested he should do – 'new' New Dealer Obama, spreader of hundreds of billions to 'jump-start the economy'. Prepare for a decade or longer of no economic progress, unless this course of action is swiftly reversed.
(Photo credit: Time Magazine)
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- A Historic Rally in Gold Stocks – and Most Investors Missed It
Buy Low, Sell High? It is an old truism and everybody has surely heard it more than once. If you want to make money in the stock market, you're supposed to buy low and sell high. Simple, right? Successful stock market investing in two simple steps Photo via slideshare.net As Bill Bonner once related, this is how a stock market advisor in Germany explained the process to him: Thirty years ago, at an investment conference, there was a scalawag analyst...
- Gold and Negative Interest Rates
The Inflation Illusion We hear more and more talk about the possibility of imposing negative interest rates in the US. In a recent article former Fed chairman Ben Bernanke asks what tools the Fed has left to support the economy and inter alia discusses the use of negative rates. We first have to define what we mean by negative interest rates. For nominal rates it’s simple. When the interest rate charged goes negative we have negative nominal rates. To get the real rate of...
- Why is the Stock Market so Strong?
Dismal Earnings, Extreme Valuations The current earnings season hasn't been very good so far. Companies continue to “beat expectations” of course, but this is just a silly game. The stock market's valuation is already between the highest and third highest in history depending on how it is measured. Photo credit: Kjetil Ree Corporate earnings are clearly weakening, and yet, the market keeps climbing. The rally is a bit of a “all of worry” type of...
- Cultural Marxism and the Birth of Modern Thought-Crime
What the Establishment Wants, the Establishment Gets If a person has no philosophical thoughts, certain questions will never cross his mind. As a young man, there were many issues and ideas that never concerned me as they do today. There is one question, however, which has intrigued me for the longest time, and it still fascinates me as intensely as it did back then: Does spirit precede matter or is it the other way around? In other words, does human consciousness create what we...
- Why All Central Planning Is Doomed to Fail
Positivist Delusions [ed. note: this article was originally published on March 5 2013 – Bill Bonner was on his way to his ranch in Argentina, so here is a classic from the archives] We’re still thinking about how so many smart people came to believe things that aren’t true. Krugman, Stiglitz, Friedman, Summers, Bernanke, Yellen – all seem to have a simpleton’s view of how the world works. A bunch of famous people with a simpleton view of how the...
- Gold Stampede
Stampeding Animals The mass impulse of a cattle stampede can be triggered by something as innocuous as a blowing tumbleweed. A sudden startle, or a perceived threat, is all it takes to it set off. Once the herd collectively begins charging in one direction it will eliminate everything in its path. Better get out of the way... stampeding bisons Photo credit: Surface Niusance The only chance a rancher has is to fire off a pistol with the hope that the shot...
- Russian Aggression Unmasked (Sort Of)
Provocative Fighter Jocks Back in 2014, a Russian jet made headlines when it passed several times close to the USS Donald Cook in the Black Sea. As CBS reported at the time: “A Pentagon spokesperson told CBS Radio that a Russian SU-24 fighter jet made several low altitude, close passes in the vicinity of the USS Donald Cook in international waters of the western Black Sea on April 12. While the jet did not overfly the deck, Col. Steve Warren called the action "provocative and...
- US Economy – Ongoing Distortions
Business under Pressure A recent post by Mish points to the fact that many of the business-related data that have been released in recent months continue to point to growing weakness in many parts of the business sector. We show a few charts illustrating the situation below: A long term chart of total business sales. The recent decline seems congruent with a recession, but many other indicators are not yet confirming a recession - click to enlarge. Wholesale...
- Getting it Wrong on Silver
Erroneous Analysis of Precious Metals Fundamentals We came across an article at Bloomberg today, talking about silver supply troubles. We get it. The price of silver has rallied quite a lot, so the press needs to cover the story. They need to explain why. Must be a shortage developing, right? At first, we thought to just put out a short Soggy Dollars post highlighting the error. Then we thought we would go deeper. Here’s a graph showing the price action in silver since the...
- Political Pundits, or Getting Paid for Wishful Thinking
Bill Kristol - the Gartman of Politics? It has become a popular sport at Zerohedge to make fun of financial pundits who appear regularly on TV and tend to be consistently wrong with their market calls. While this Schadenfreude type reportage may strike some as a bit dubious, it should be noted that it is quite harmless compared to continually leading people astray with dodgy advice. To answer the question posed in the picture with the benefit of hindsight: not really.... (look...
- 100 Years of Mismanagement
Lost From the Get-Go There must be some dark corner of Hell warming up for modern, mainstream economists. They helped bring on the worst bubble ever… with their theories of efficient markets and modern portfolio management. They failed to see it for what it was. Then, when trouble came, they made it worse. But instead of atoning in a dank cell, these same economists strut onto the stage to congratulate themselves. The scalawag himself. Keynes provided governments with the...
- Running Mate Turns Into Fall Girl
Odd Couple While checking on the US primaries a few days ago, we came across a piece of news informing us that pretend candle-swallower Ted Cruz had picked Carly Fiorina as his “vice-presidential running mate”. Our first thought upon hearing this was “WTF”? The match made in heaven... two loooosers find each other. Photo credit: AP It's not so much that he's picking another “loooooser” as The Donald would put it...the real absurdity of it is that...