Quote of the day – Richard Fisher, head of the Dallas Fed

Richard Fisher of the Dallas Fed shows that some of the Fed Presidents get it. He is now on record for saying that interest rate cuts won’t solve America’s credit crisis problems. In fact, interest rate cuts will make them much worse. If only Greenspan had felt this way, we wouldn’t be in this mess.

“Since the beginning of the year, I have been worried about the efficacy of reducing the Fed Funds rate given the problems of liquidity and capital constraints afflicting the financial system. As I see it, the seizures and convulsions we have experienced in the debt and equity markets have been the consequences of a sustained orgy of excess and reckless behavior, not a too-tight monetary policy.”

“There is no nice way to say this, so I will be blunt: Our credit markets had contracted a hideous STD — a securitization transmitted disease — for which lowering the funds rate to negative real levels seemed to me to be not only an ineffective treatment, but a palliative and maybe even a stimulus that would only encourage further mischief.”

“I was and I remain skeptical that lowering the Fed Funds rate is the most effective antidote for such a pathology, given that, in my book, rates held too low, too long during the previous Fed regime were an accomplice to that reckless behavior. A Fed Funds rate of around 3.5% — that was the level at which I began to stray from “the pen” — did not appear to me to be the principal problem, particularly with commodities prices soaring and incipient inflation coming to our shores from demand-pull pressures and rising labor costs in the countries that we use to source the inputs needed to run our manufacturing base and stock the shelves of our retail stores.”

Real-Time Economics

Dallas Fed’s Fisher: Rates Cuts Won’t Cure STD (Securitization Transmitted Disease) – Real-Time Economics

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