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Well you've heard of the fiscal cliff -- reference -- many times -- could occur when taxes are scheduled go up at the end of the year but what about a monetary -- What happens when the Federal Reserve has to sell off those two point seven trillion dollars worth of bonds and securities that its purchase since the financial crisis began.
I asked Richard Fisher the president the Dallas fed reserve that very question and here's what he set.
A cliff indicates -- you can't knew more about the fall off again.
I don't think it's quite appropriate on the monetary side because theoretically there is no end.
But in practical terms.
There's a limit to what we can do without distorting the marketplace and that's -- subject of much debate that the committee what Richard you -- save it or you suggest that we've gone perhaps too far and in the Federal Reserve.
Buying up a lot of the bonds and existence will there be any more bond buying I know you would be opposed to it.
But do you think this current economic situation will the jury to the point were members of the Fed might suggests that the Fed needs to buy more bonds and print more cash.
The question really is what's -- efficacy how effective is it.
For us and the marketplace by more securities.
We have so much money lying -- that's just not being used.
One and a half trillion dollars in excess bank reserves that are on deposit at the Federal Reserve -- trying to country their called us at keeping deposits for private banks.
Over two trillion dollars in corporate money is just sitting on their balance sheets not being used.
Even more money.
In non depository financial institutions so there's a ton of money sitting out there and the real question is why -- -- being put to work.
And then another question would be.
If we add to that why would we since what's forty there.
There's not think that's -- well I you know my answer which is we have no clarity from fiscal authorities.
We also have great concern about and final demand -- in Europe China and so on so I don't think it really adds this is my personal view.
And I would argue against it well it also it also somebody comes up and I'm not understand it also comes back to the beginning of this financial crisis when it went great economists like -- Schwartz who just passed away.
Suggested that that the Fed was misleading the cause -- the the cause of the crisis wasn't too little cash in this system the cause was uncertainty.
About whether the people -- banks were lending to could pay back.
Now you're right there there was -- confidence but I I would also -- this a personal view.
The other thing Anna Schwartz was so good on I'm glad you -- she is really the patient's state my cause which is.
The issue of dealing with too big to fail she made -- very clear.
That this was a dangerous phenomenon.
That those who make mistakes should be allowed to fail.
And those as she put it that succeed should be allowed to get rich.
We have a perversion here where we reward those -- subsidize those under Dodd-Frank still and certainly before Dodd-Frank.
Structure themselves in a way.
That they can fail and yet recoverable come bail them out so we have a perversion.
Question about Operation Twist itself.
Is where the Fed debt.
Buys up some of those long term bonds and sell some of the short term but.
There's there's a cost to everything Milton Friedman says -- no such thing as a free lunch what is the cost.
To work on -- -- Operation Twist it's hard to tell what the benefit is David has right now.
And I'm sure your usual appreciate us because everybody else is doing so poorly money is for rushing in the United States.
As difficult as you and I find it hard to believe with our government such a mess.
I think about the congress not -- -- approaching a fiscal cliff all this uncertainty.
US treasuries are still in demand and as you know I've said.
We are the best looking horse in the glue factory and what that means is those inflows are suppressing interest rates here in the United States it's hard for me to tell personally.
How much Operation Twist is having an effect on how much as the flows.
My suspicion is Operation Twist is having a very minor effect.
And I don't think and I have argued that the benefits.
Do not exceed the costs the costs exceed the benefits and that's why I personally didn't support the program all right fight I was in a minority.
I understand finally on the economy itself you have said that there is a norm among the business community -- -- enormous uncertainty and angst that businesses face.
What do politicians do to turn that around how do we -- -- that -- in the business community that slowing our -- our economy.
We'll make decisions to give some certain.
Look if you are running from the David company.
And we were thinking about how we're gonna budget our costs and how -- might grow our top line our revenue line.
We have no idea what our tax rates going to be we don't know what it -- to hire someone and give them health insurance because that's still up near hope -- be resolved on Thursday.
We have no idea what final demand.
Will be as it's impacted by federal spending.
And businesses are good at making decisions -- accused of uncertainty -- for -- trying to do when you have massive uncertainty.
It's very hard to plan your business our federal government is the cause enormous uncertainty.
It's not the only cost of some mega cause.
But isn't it better to do nothing than to do more of the wrong thing.
-- -- I believe the private businesses.
On balance always do the right thing that's how capitalism are talking about the politicians.
The politicians obvious some have argued that what the politicians have tried hasn't worked like the fiscal stimulus and their forward be better -- If they were locked if they weren't able to do anything rather than doing more of the bad thing.
Well I don't wanna get into the partisan aspects of this but I -- -- one thing.
They have to stop doing what Republicans and Democrats together have been doing for far too long.
That is digging a giant hole in which they are burying our children with debt and unfunded liabilities.
And until that's process stops.
Until they come forward with -- job creating tax and spending incentives.
Then I don't think we'll pull ourselves around and David will be headed in the wrong direction so.
This is what is required now you can't depend on the Central Bank the Federal Reserve to print your way out of it.
That's just creates other problems you've got to solve the problem the time is now.
So saying essentially you cannot depend on the central banks the Fed reserve.
It's not going to be able print money in order to save ourselves from the mess we're in Lizzie saying it's all up to the politicians.
And of course the politicians are all saying hey it's you central bankers who were the ones are got to do it that's what the European politicians are saying.
So a lot of politicians here six by the way Richard Fisher for those who were interest it is a registered Democrat even though it's often.
Thought of as as quite a conservative -- -- the other -- reserve man but he is of real voice of reason.