What’s this? Creeping sanity at the FED? Well, at least at the Dallas FED.
The U.S. Federal Reserve and other central banks must not succumb to calls for additional help from monetary authorities in the face of high budget deficits, two top Fed officials said on Friday.
Using the Fed as a printing press to solve the U.S. deficit problem would unleash the “sinister beast” of inflation and “is not an option,” Dallas Fed President Richard Fisher told the Dallas/Fort Worth Minority Supplier Development Council.
Fisher is a monetarist — a follower of Milton Friedman. He wants fiat money, but not too much.
“Our nation has a crying need for public leadership to correct what’s wrong in the economy,” Fisher said. Monetary policy, he said, “cannot do it alone,” but “must be complemented by responsible fiscal policy.”
This is what Bernanke has been saying for years. Bernanke is trying to shift blame to Congress. But he also inflates. He says it will not work; then he does it.
Fellow inflation hawk Philadelphia Fed President Charles Plosser told a conference at his bank’s headquarters that any attempt to “resort to the printing press” to avoid budget trouble was doomed to failure and could lead to hyperinflation.
This is the truth. It is also why I think the FED will eventually stop inflating and let the Treasury pay high interest rates. That will produce a massive recession.
“Despite the well-known benefits of maintaining price stability, there are increasing calls to abandon this commitment in both Europe and the U.S.,” Plosser said, just two days after a coordinated international central bank action to provide dollar liquidity to global banks.
But Fisher supported the FED’s action. He wants it both ways: fiscal tightening soon, but monetary inflation immediately. Fiscal tightening never comes. So, we read, “Further monetary easing might be warranted if there is deterioration in the financial sector, Plosser said.”
It never changes. When push comes to shove, the FED inflates. Bernanke knows no other response. But his replacement may be more courageous.
“We don’t want to be in a situation like Greece. We are headed that way, if we are not careful,” Fisher said.
“We are headed in the wrong direction, and if we don’t bring it under control, we are going to have social unrest.”