Will The GOP Listen to This Fed Hawk?

August 17th, 2011 at 7:34 pm | 21 Comments |

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Republicans believe the economy is weak because of “uncertainty” created by the Obama administration. Yet a recent statement by a Federal Reserve President suggests that if there is any uncertainty, it should be blamed on the Republicans for forcing a standoff with the White House over the debt ceiling. This is not from the remarks of an inflation dove, but rather, one of its hawks who recently dissented from the Fed’s plan for further easing.

Here is what Dallas Federal Reserve President Richard Fisher told an audience in Texas today on Wednesday August 17th:

According to my business contacts, the opera buffa of the debt ceiling negotiations compounded this uncertainty, leaving business decisionmakers frozen in their tracks.

With the leadership of the nation―Republicans and Democrats alike―and every talking head in the media making clear hour after hour, day after day in the run-up to Aug. 2 that a financial disaster was lurking around the corner, it does not take much imagination to envision consumers deciding to forego or delay some discretionary expenditure they had planned. Instead, they might well be inclined to hunker down to weather the perfect storm they were being warned was rapidly approaching. … Small wonder that, following the somewhat encouraging retail activity reported in July, the Michigan survey measure of consumer sentiment released just recently had a distinctly sour tone.

(emphasis mine)

Fisher can’t come out and say that the crisis which weakened the economy was the work of the Republicans deciding to take a stand over the debt ceiling, but the evidence bears that out. Republicans sought a confrontation over the debt ceiling and in some cases, even suggested a default was acceptable. Remember when Paul Ryan said we could default for “a day or two or three or four” as long as we had a long term plan? Even Mitch McConnell seems to have learned the wrong long term lesson from this debate:

“I think some of our members may have thought the default issue was a hostage you might take a chance at shooting. Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming. And it focuses the Congress on something that must be done.”

No recognition at all that holding the economy hostage seems to weakens it.

If Republicans won’t listen to mainstream economic and political commentators, maybe they can listen to a conservative and hawkish Fed President when he pins the blame for the weaker economy on the political fight that took place in August, a fight that Republicans sought.

Recent Posts by Noah Kristula-Green



21 Comments so far ↓

  • Frumplestiltskin

    Nice column Noah. You, David, and Eli are the reason I keep coming back to Frumforum.

    • Smargalicious

      Bollocks. When I read this, I knew it was a diatribe:

      “…Yet a recent statement by a Federal Reserve President suggests that if there is any uncertainty, it should be blamed on the Republicans for forcing a standoff with the White House over the debt ceiling.”

      The GOP finally brought our biggest issue forward and made the socialists act. Period.

      • Cforchange

        Oh so you finally reveal yourself as a worker bee not a business owner.

        Now the the small business world lives with the hangover of this affair, that being large orders in limbo. But I guess that is small potatoes compared to the threat of suspending payroll for our military. You socialist fighters really have our backs don’t you.

      • medinnus

        *laughs* What a farging idiot.

  • Oldskool

    Yeah, it’s doubtful they’ll listen unless it’s shouted by someone in the audience at a town hall meeting at just the right pitch and volume and then looped on Fox over and over.

    Trying to think of a time when Dems had this problem. Maybe Vietnam, but, protesters had no media empire. And too, they turned out to be right about the war, so, nevermind.

  • sweatyb

    Fisher can’t come out and say that the crisis which weakened the economy was the work of the Republicans deciding to take a stand over the debt ceiling

    Why not?

    It’s a matter of historical record that a certain faction of our government thought that default was good politics. We know who those people are. They were kinda proud of it (you know, before the Dow dropped 1000+ points).

    There’s still a certain faction of our government that fervently believes that the only chance they have to retain political power in the coming election is to ensure that there is no recovery.

    At this point, it’s not even a political question. I don’t think a Fed governor need pussy-foot around just how radical certain members of Congress have become.

  • Banty

    Betcha he said it in a Texas accent, too.

    Of course the threat of default on some part of US government obligations, and the loss in confidence that would result from that, introduced uncertainty. And far beyond the level that some possible regulation, or some implementation of the ACA, would create. Those who are not beholden to an ideological advocacy group all pretty much recognize that.

    Of course, from the Republican P.O.V., instant capitulation on the part of the administration would have settled things immediately. But not even that, actually, as that would have invited still more aggressive moves to force regressive economic policy. There was NO good end, to this country, to this.

    The decision on the part of Republicans to threaten to refuse to make good on our already written obligations, was the most irresponsible and far reaching since the decision to go to war with Iraq in 2003.

  • JimBob

    He’s no FED HAWK. In fact he’s a strong advocate of Monetary Central Planning. Socialism.

    http://www.lewrockwell.com/north/north932.html

  • JohnMcC

    I blame gay marriage.

  • jamesj

    We have elected officials who created a needless crisis in confidence that did real damage to the US and world economies. Those same people accuse the president of having caused all of the nation’s problems. It blows my mind that most voters are still blind to this scam.

    The macro problem here is that one of the country’s two major political parties has birthed and nurtured an extreme ideology that focuses on dismantling civilization as we know it. The rhetoric they use promotes the inevitability of failure for any large-scale governing body, which of course hurts consumer confidence and slows economic growth (not to mention hurting the structural integrity of society itself).

    I don’t think destroying citizen pride and confidence in their country is a path to a stronger country. But we even see this very notion in the overt stated positions of many modern Republican politicians. They openly endorse the weakening of the nation as a unified power and endorse the splintering of American society into smaller and more-fractured sub-units.

    I believe in Federalism and states’ rights, but I think the modern Republican party has lost sight of any realistic notion as to what is strong and what is weak about these concepts. They have their benefits and drawbacks and we must acknowledge both and not lunge headfirst into an extreme stance that weakens the country. But the modern Republican party lacks the skill of pragmatic analysis. It has become a feeding frenzy of utopian ideologues and Dunning-Kruger poster boys.

  • sdspringy

    The statements of “default” were never true. Those with any honesty realize that there existed monies to pay the interest on bonds which is all that was required to prevent a “default”.

    We are constantly treated to comments from Libs that Bush’s spending resulted in the current levels of debt and deficit. The only thing lacking from any of these comments is what the Dems would have done different. Now we know through their own action that their response was to spend even more.

    Finally, with the election of mere thirty members to the House and a handful to the Senate the spending habits have begun to change. Does that make the Dems happy, after all their complaint of unfunded spending by Bush, no.

    Neither the debt ceiling talks nor the downgrade by S&P resulted in any financial damage to the US credit rating. Far from the planet abandoning the US bond market, they are flocking to buy US bond. Why? If you haven’t noticed the US is the safe place for your savings right now. China’s inflation rate is exploding, Europe is imploding, the US is coming to grips with their overspending. Where would you invest???

    The Markets are responding to the implosion of the EuroZone not the US downgrade. The Euro, as a viable currency is almost at an end. Only Germany remains to support the entire European continent and they will soon realize the PIIGS and France may not be worth saving.

    The lesson to learn from this is countries that overspend, restrict free enterprise and overtax will suffer the fate of the PIIGS.

    • TerryF98

      Still deluded after all these years.

    • JP4266

      France needs saving? From Wikipedia:

      France is the world’s fifth largest and wealthiest economy.[7] It is the second largest economy in Europe (behind its main economic partner Germany).[7] France’s economy entered the 2008-2009 recession later and left it earlier than most comparable economies, only enduring four quarters of contraction. As of September 2010, France’s economy has been growing continuously since the second quarter of 2009.[8] Between January and March 2011, France’s GDP growth has been stronger than expected, at 1%, one of the best figures in Europe.[9]

      • Chris Balsz

        Do you consider 1% GDP growth to be “strong”, and should the United States adopt an economic model that can generate that kind of growth?

    • Banty

      “The statements of “default” were never true. Those with any honesty realize that there existed monies to pay the interest on bonds which is all that was required to prevent a “default”.”

      Oh good grief this one again.

      Bond investors care if the country they’re buying from, defaults on other legal obligations. Just as a credit card issuer cares if you default on your mortgage. Worse than that even, because it would mean that any legal obligation, brought upon by laws passed in Congress, could be meaningless.

      As it is, the current rush to bonds is only because they’re the least-worst place for money. That will be changing.

  • Chris Balsz

    “According to my business contacts, the opera buffa of the debt ceiling negotiations compounded this uncertainty, leaving business decisionmakers frozen in their tracks.

    I would suggest that unless you were on another planet, no consumer with access to a television, radio or the Internet could have escaped hearing their president, senators and their congressperson telling them the sky was falling. With the leadership of the nation―Republicans and Democrats alike―and every talking head in the media making clear hour after hour, day after day in the run-up to Aug. 2 that a financial disaster was lurking around the corner, it does not take much imagination to envision consumers deciding to forego or delay some discretionary expenditure they had planned. Instead, they might well be inclined to hunker down to weather the perfect storm they were being warned was rapidly approaching. Watching the drama as it unfolded, I could imagine consumers turning to each other in millions of households, saying: “Honey, we need to cancel that trip we were planning and that gizmo or service we wanted to buy. We better save more and spend less.” Small wonder that, following the somewhat encouraging retail activity reported in July, the Michigan survey measure of consumer sentiment released just recently had a distinctly sour tone.

    Importantly, from a business operator’s perspective, nothing was clarified, except that there will be undefined change in taxes, spending and subsidies and other fiscal incentives or disincentives. The message was simply that some combination of revenue enhancement and spending growth cutbacks will take place. The particulars are left to one’s imagination and the outcome of deliberations among 12 members of the Legislature.

    Now, put yourself in the shoes of a business operator. On the revenue side, you have yet to see a robust recovery in demand; growing your top-line revenue is vexing. You have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency. You have money in your pocket or a banker increasingly willing to give you credit if and when you decide to expand. But you have no idea where the government will be cutting back on spending, what measures will be taken on the taxation front and how all this will affect your cost structure or customer base. Your most likely reaction is to cross your arms, plant your feet and say: “Show me. I am not going to hire new workers or build a new plant until I have been shown what will come out of this agreement.” Moreover, you might now say to yourself, “I understand from the Federal Reserve that I don’t have to worry about the cost of borrowing for another two years. Given that I don’t know how I am going to be hit by whatever new initiatives the Congress will come up with, but I do know that credit will remain cheap through the next election, what incentive do I have to invest and expand now? Why shouldn’t I wait until the sky is clear?”

    Based on past behavior of fiscal policy makers, businesses understandably regard the debt ceiling agreement and the political outcome of negotiations between Congress and the president with the suspicion akin to how the British humorist P.G. Wodehouse regarded his aunts: “It is no use telling me there are bad aunts and good aunts,” he wrote. “At the core they are all alike. Sooner or later, out pops the cloven hoof.”

    It will be devilishly difficult for businesses to commit to adding significantly to their head count or to meaningful capital expansion in the United States until clarity is achieved on the particulars of how Congress will bend the curve of deficit and debt expansion and the “cloven hooves” are revealed. No amount of monetary accommodation can substitute for that needed clarity. In fact, it can only make it worse if business comes to suspect that the central bank is laying the groundwork for eventually inflating our way out of our fiscal predicament rather than staying above the political fray—thus creating another tranche of uncertainty.”

    Seems clear Mr. Fisher is condemning the “bipartisan solution” which provides no resolution on tax and spending policy for six months. Seems clear he “can’t come out and say that the crisis which weakened the economy was the work of the Republicans” because that is not his opinion.

  • D Furlano

    Chris Cook Asia Times;

    http://www.atimes.com/atimes/Global_Economy/MG27Dj02.html

    “There is a charade playing out in Washington at the moment in respect of the completely meaningless “debt ceiling” which the US maintains as a relic from the days of the gold standard.

    We are told that at the US Treasury’s account at the Federal Reserve Bank there will soon be no more taxpayers’ dollars, and therefore the Fed will soon be unable to make any more payments or issue any more cheques on behalf of the Treasury. The money has run out.

    This is nonsense. It is a myth, and moreover it is a myth that Federal Reserve chairman Ben Bernanke exploded in his recent…”

    • Chris Balsz

      Zimbabwe has the same mechanisms for creating units of national equity. Their problem is that their currency is so divorced from any actual values, that nobody beyond the range of the violence of their government will accept that currency in trade. There is no point holding Zimbabwe currency. There’s no limit to how much is in circulation, so it can’t hold value against prices. It has no global buying power.

      The only reason the planet turns to the dollar as a reserve, is the politics of the 1930s led to a war in the 1940s that destroyed the economies of every industrialized nation on earth except the United States. We inherited our primacy. It’s being challenged by 60 years of global industrialization. Our economy is considered extravagant, even decadent by our competition. Our political economy is considered abusive by the actors we rely on to prop it up.

      “Mainstream” political economy says, let’s go even further towards “surrealism” by adopting a Zimbabwe-style attitude towards our currency, on the assurance that the entire human race can’t think of an alternative but pay for it. That, to me, is a sucker bet.

      • D Furlano

        I don’t understand why these myths continue to persist. This was written about Zimbabwe in 2009;

        http://bilbo.economicoutlook.net/blog/?p=3773

        Not really sure why anyone thinks there will be hyperinflation or actually what the cause would be of any inflation? The stock market dropped another 400 points today and 10 year treasuries hit a record low of 2.08 as everyone looks to buy the most secure investment in the world.

        Oh, and that was after the S&P downgrade.

        Everything is going as predicted. The nuts in Washington believe that the debt is problem and try to reduce it causing a major slow down in an already weak economy. Interest rates will continue to drop as investors seek security because they know that any reduction in debt or cut in government spending will stall the economy. Unemployment will continue to rise as companies start reducing the workforce in anticipation of another recession.

        And people will run around worrying about inflation, entitlements, and how big the government is getting.

        Its going to be an interesting holiday season.

  • LFC

    “Will you raise your hand if you feel so strongly about not raising taxes you’d walk away on the ten to one deal?”

    The unanimous answer given to this question is all you need to know about who is to blame for the current climate of economic uncertainty and fear.

    People who refuse to compromise despite being given 90% of what they want are dangerous.