Another Gem from Fed President Richard Fisher

In a speech last week, Dallas Fed President Richard Fisher made comments that market participants have become addicted to the Federal Reserve’s easy money. He also criticized Congress and their fiscal woes. A must read.

From the speech:

“We have been thrown way off course by congresses populated by generations of Democrats and Republicans who failed the nation by not budgeting ways to cover the costs of their munificent spending with adequate revenue streams. The thrust of the political debate is now—and must continue to be—how to right the listing fiscal ship and put it back on a course that encourages job formation and gets the economy steaming again toward ever-greater prosperity. No amount of monetary accommodation can substitute for the need for responsible hands to take ahold of the fiscal helm. Indeed, if we at the Fed were to abandon our wits and seek to do so by inflating away the debts and unfunded liabilities of Congress, we would only become accomplices to scuttling the economy.”

Regarding liquidity and monetary policy:

“I am personally perplexed by the continued preoccupation, bordering upon fetish, that Wall Street exhibits regarding the potential for further monetary accommodation—the so-called QE3, or third round of quantitative easing. The Federal Reserve has over $1.6 trillion of U.S. Treasury securities and almost $848 billion in mortgage-backed securities on its balance sheet. When we purchased those securities, we injected money into the system. Most of that money and more has accumulated on the sidelines: More than $1.5 trillion in excess reserves sit on deposit at the 12 Federal Reserve banks, including the Dallas Fed, for which we pay private banks a measly 25 basis points in interest. A copious amount is being harbored by nondepository financial institutions, and another $2 trillion is sitting in the cash coffers of nonfinancial businesses.

Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial market operators keep looking and hoping for more. Why?”

Good question. Maybe some of that money would find its way into expanding businesses, entrepreneurial activity, progress and innovation, and other elements of the economy so hindered by monetary and fiscal policies if someone, anyone, would take away the free-money mechanism. Make banks and institutions make money the old-fashioned way, through loans and investments, instead of tying it all up in guaranteed interest carrys. Then, finally, we can all begin to return to some sense of normalcy and real growth.

Read the full speech here.