Washington Doesn’t Get It!
Posted By thestatedtruth.com on January 14, 2011
This from Art Cashin on the floor of The New York Stock Exchange……..Basically the government doesn’t get it!  Last Friday, speaking in Germany, [European Central Bank President] Jean-Claude Trichet said it best: “Monetary policy responsibility cannot substitute for government irresponsibility.â€
Fiery Fedspeak –There were some interesting comments from several Fed presidents yesterday. One eye-opener came from a letter to the SEC written by Jeffrey Lacker, President of the Richmond Fed. Mr. Lacker called for a shift to floating value for money market funds. He fears that the public assumes that the Fed would bail out any fund that was in danger of “breaking the buck†(as they had done in the late fall of 2008).  Shifting to a floating rate would raise the risk of losing some of your principal. That, most likely, would drive money out of the funds into the banking system where it would be insured. This bears watching.
The most eye-popping Fed comments were contained in a speech delivered in New York City by Richard Fisher, President of the Dallas Fed. Among other things, he suggested that QE2 should be the end of the line for monetary policy. He also took a critical view of Congress and of the lack of business acumen at the White House. I think it is a uniquely candid and powerful speech. Go the Dallas Fed website and read the whole thing. It will be a worthwhile exercise.
Just to whet your appetite, here are a couple of samples:
I have been outspoken about the limits of monetary policy as a salve for the nation’s fiscal pathology. The Fed has done much, in my words, to provide the bridge financing until the new Congress gets to work restructuring the tax and regulatory incentives American businesses need to confidently expand their payrolls and capital expenditures here at home.
The Federal Reserve has held rates to nil. We have expanded our balance sheet to unprecedented levels. After much debate?which included strong concern expressed by one member with a formal vote and others, like me, who did not have voting rights in 2010?the FOMC collectively decided in November to temporarily undertake a program to purchase U.S. Treasuries that, when added to previous policy initiatives, roughly means we are purchasing the equivalent of all newly issued Treasury debt through June.
By this action, we have run the risk of being viewed as an accomplice to Congress’ fiscal nonfeasance. To avoid that perception, we must vigilantly protect the integrity of our delicate franchise. There are limits to what we can do on the monetary front to provide the bridge financing to fiscal sanity. Last Friday, speaking in Germany, [European Central Bank President] Jean-Claude Trichet said it best: “Monetary policy responsibility cannot substitute for government irresponsibility.â€
The entire FOMC knows the history and the ruinous fate that is meted out to countries whose central banks take to regularly monetizing government debt. Barring some unexpected shock to the economy or financial system, I think we have reached our limit. I would be wary of further expanding our balance sheet. But here is the essential fact I want to emphasize today: The Fed could not monetize the debt if the debt were not being created by Congress in the first place.
And later:
I don’t believe this has much to do with the Fed. None of my business contacts, large or small, publicly held or private, are complaining about the cost of borrowing, the lack of liquidity or the availability of capital. All express concern about taxes, regulatory burdens and the lack of understanding in Washington of what incentivizes private-sector job creation. All are stymied by a Congress and an executive branch that have appeared to them to be unaware of, if not outright opposed to, what fires the entrepreneurial spirit. Many have begun to feel that opportunities for earning a better and more secure return on investment are larger elsewhere than here at home.
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