Duelling Pundits

It's one thing to have sports commentators or journalists talking over each other on the air. That's like bear baiting at the Globe Theater: an uncivilized sideshow. I can't remember anything like the daily spectacle of Federal Reserve Bank Presidents talking over each other in speeches and press releases. This practice should be reined in because it's unseemly and disconcerting. The Fed is in danger of being trivialized.

Dallas Federal Reserve Bank President Richard Fisher gave a good speech at the Economic Club of Minnesota. It covers quite a few points we've made before about the huge liquidity trap resulting from the unprecedented "quantitative easing." He quoted a statistic that is from the classic central banker paradigm: member banks at the Fed are holding more than $1 trillion in excess reserves with the central bank! I have an idea to mop these up. Do like the gift card issuing banks do with consumers: make the excess reserve balances decline monthly at a 2% annual rate. In other words, use 'em or lose 'em.

In Fisher's conversations with small business leaders, he says access to credit is rarely their number one concern. Interesting, and surprising too.

Aside from share buybacks and dividend increases, big company leaders have told Fisher that they don't see the case for investing in capital beyond their depreciation, and the biggest factor is uncertainty about the political situation and the subsequent roll out of regulations from health care reform and financial system reform. This makes some sense, but it also makes the global executives seem to be indecisive leaders.

The upshot of Fisher's speech is that additional expansionary policies by the Fed would be "pushing on a string," and that's something that we've said for a long time. He is one of the few Fed Presidents to really put the onus on fiscal policy going forward as a key to relieving the angst felt by big company executives.