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 'price stability policy' during the 1920's boom, Irving 'permanent plateau' Fisher (alas, no relation), has made some interesting comments in a recent CNBC interview. Now leaving aside the football analogies, we learn here that Fisher is 'trained as a businessman', not a professional bureaucrat.

 

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.

See for instance this study by the NFIB (National Federation of Independent Business) 'Small business credit in a deep recession'(pdf) or its most recent monthly survey of business conditions (pdf).

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:

 

We're all supposed to be Keynesians now, 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, 'The Macro Trumps All Else', 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)

 

 


 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Gold Sector Update – What Stance is Appropriate?
      The Technical Picture - a Comparison of Antecedents We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of...
  • Don’t Blame Trump When the World Ends
    Alien Economics There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard. As far as we can tell, this wonderful epoch concluded in 1936. Everything since has been tortured with varying degrees of gobbledygook.   One should probably not be overly surprised that the abominable statist rag Time Magazine is fulsomely praising Keynes' nigh unreadable tome. We too suspect that this book has actually lowered the planet-wide IQ –...
  • Incrementum Advisory Board Meeting, Q1 2017 and Some Additional Reflections
      Looming Currency and Liquidity Problems The quarterly meeting of the Incrementum Advisory Board was held on January 11, approximately one month ago. A download link to a PDF document containing the full transcript including charts an be found at the end of this post. As always, a broad range of topics was discussed; although some time has passed since the meeting, all these issues remain relevant. Our comments below are taking developments that have taken place since then into...
  • What is the Best Time to Buy Stocks?
      Chasing Entry Points Something similar to the following has probably happened to you at some point: you want to buy a stock on a certain day and in order to time your entry, you start watching how it trades. Alas, the price rises and rises, and your patience begins to wear thin. Shouldn't a correction set in soon and provide you with a more favorable buying opportunity?   Apple-Spotting – a five minute intraday chart showing the action in AAPL on February 1, 2017 - an...
  • Trump and the Draining of the Swamp
      Swamp Critters BALTIMORE – The Dow is back above the 20,000-point mark. Federal debt, as officially tallied, is up to nearly $20 trillion. The two go together, egging each other on. The Dow is up 20 times since 1980. So is the U.S. national debt. Debt feeds the stock market and the swamp. What’s not up so much is real output, as measured by GDP. It’s up only 6.4 times over the same period. Debt and asset prices have been rising three times as fast as GDP for 36 years! Best...
  • Gold and Silver Divergence – Precious Metals Supply and Demand
      Gold and Silver Divergence – Precious Metals Supply and Demand Last week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when prices are rising. Everyone knows that the price of silver is supposed to outperform — the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it...
  • When Trumponomics Meets Abenomics
      Thirty Year Retread What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks? [ed. note: when we edited this article for Acting Man, the meeting was already underway]   Japan's prime minister Shinzo Abe, a dyed-in-the-wool Keynesian and militarist, meets America's...
  • The Great Wailing
      Regret and Suffering BALTIMORE – Victoribus spolia... So far, the most satisfying thing about the Trump win has been the howls and whines coming from the establishment. Each appointment – some good, some bad from our perspective – has brought forth such heavy lamentations.   Oh no! Alaric the Visigoth is here! Hide the women and children! And don't forget the vestal virgins, if you can find any...   You’d think Washington had been invaded by Goths, now...
  • Receive a One Percent Gift When Buying or Selling a Home
      How to Save Money When Buying or Make More When Selling a Home In your professional capacity and perhaps also in your private life, you may be closely involved with financial and commodity markets. Trading in stocks, bonds or futures is part of your daily routine.  Occasionally you probably have to deal with real estate as well though – if you e.g. want to purchase an apartment or a house, or if own a home you wish to sell.   The people who took this photograph probably want to...
  • Silver Futures Market Assistance – Precious Metals Supply and Demand
      Silver Is Pushed Up Again This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday.   Taking off for real or not? Photo credit: NASA   Is this the rocket ship to $50? Will Trump’s stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again? This will again be a brief Report this week, as we are busy...
  • Unleashing Wall Street
      To Unleash or Not to Unleash, That is the Question... LOVINGSTON, VIRGINIA –  Corporate earnings have been going down for nearly three years. They are now about 10% below the level set in the late summer of 2014. Why should stocks be so expensive?   Example of something that one should better not unleash. The probability that a win-lose proposition will develop upon meeting it seems high. It wins, because it gets to eat... Image credit: Urs Hagen   Oh,...
  • Boondoggles for the Swamp Critters
      Monster or Mozart? BALTIMORE – Investors seem to be holding their breath, like a man hiding a cigarette from his wife. It’s just a feeling, and it’s not the first time we’ve had it... but it feels as though it wouldn’t take much to send them all running.   Actually, they're not going anywhere yet... but there is a lot of overconfidence by those who were very worried when prices were a lot better - click to enlarge.   Meanwhile... we’re coming to a deep...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com