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From my observations of people who experienced the inflationary 1970's, they don't ever, ever want to go back to those times. It spawned a whole new generation of inflation hawks. The fact that we've come full-circle rate-wise down to the zero-rate lower bound is lost on them. I would say Richard Fisher is one of those people. The trouble is it's not the 1970's any more.

Perhaps there is a natural human view that those with money want to keep it. Inflation affects those who have money, the employed. Deficient Demand affects those without money, the unemployed.

Government-created uncertainty? Pray tell what does he mean? The health-care act which will impose individual mandates? I will say flat out that both businesses and consumers will love the act when it's in full force and takes a good deal of risk which impedes greater consumption out of the system.

Banking reform? That is more narrow and given the bailouts that occurred, a good portion of the American public is crying for "Never Again" and a pound of flesh and all the usual populist cries.

Maybe a more telling question is to ask Mr. Fisher if markets can fail. If so, do the Fed and the US Government have to step in to sort things out. That really seems to be the philosophical issue here.

I think it's (almost) irrelevant to what extent weakness in business spending can be explained by regulatory uncertainty. The Fed's mandate is not conditional on optimal government policy. If the government were running large deficits during a time of full employment, it would naturally be the duty of the Fed to offset the inflationary impact with tight money. If, during a time of low employment and below-target inflation, the government is following policies whose impact is to exacerbate that situation, it is the duty of the Fed to offset that impact with easy money. If it were strictly a supply-side problem, that would be different, but clearly it's not, or the inflation rate would be rising instead of falling.

Did their factory farmed eggs taste any worse than our Egg Marketing Board controlled eggs? jk

"Mr. Fisher is an important man; among other things he was a voting member of the FOMC in 2008 and will be again in 2011"

He, like all of the other federal Reserve bank presidents, must be confirmed by majority vote on the Federal Reserve Board of Governors in 2011.

One thing I never got a good detailed explanation for is why -- if Bernanke really did what much greater stimulus -- he didn't threaten to not confirm the obstructing bank presidents, and follow through if necessary. He has a majority for stimulus right now on the Board if he wants it to vote with him on this, and if he pushed Obama for recess appointments he might get even two more votes soon.

Why wouldn't he do this if he really wanted stimulus? Is "consensus" really that important compared to the great costs of the long delay we've already had in helping the economy and millions of unemployed families?

Uncertainty is what the Fed creates when it fails to support the economy as it is doing now.

What Lord said. Precisely. We do not know what the Fed is even trying to do. At least we know what the Bank of Canada is trying to do, because it keeps on repeating the 2% mantra. The only uncertainty is whether the BoC will get it right, and what it will need to do to get it right. With the Fed, nothing is certain.

@Just visiting

I'm not sure if they taste better, but the factory farmed eggs are more likely to make you sick.

Apologies to the rest of you for the return fire at the drive by.

Determinant: "From my observations of people who experienced the inflationary 1970's, they don't ever, ever want to go back to those times. It spawned a whole new generation of inflation hawks." I wonder about that. As someone who grew up in the 70s, I just regard inflation as normal, and am always vaguely surprised when prices don't change from year to year. When nominal prices decline over time, as is the case for goods whose production costs have been slashed by outsourcing, it strikes me as very strange. T-shirts, in particular - think of everything that goes into making a t-shirt from growing the cotton to spinning it to knitting it into fabric to designing the t-shirt, cutting the fabric, sewing it up and shipping it, how can a t-shirt possibly be so cheap?

I have seen any number of people who lived through those times who regard double digit inflation and nominal interest rates with unveiled contempt.

Many thanks for posting this - it's fascinating, if sobering stuff. But are you seriously saying that of five prepared questions, two were not asked, two not answered, and the only material response was that a regional Fed president sees no reason to examine financial crises in other developed economies when formulating policy for America?

Good grief. For once: what Nick said.

Determinant - but did those people who regard inflation with unveiled contempt grow up in inflationary times or in times with relatively stable price levels? The economic times you grow up in affect your attitudes for life.

Apologies to the rest of you for the return fire at the drive by.

Actually, it was a bit more subtle than that. If I understand Richard Fisher's argument properly (and there's a good chance I don't) he suggests more certainty in regulation leads to better business outcomes. So, what could be more regulated/less uncertainty for business than an Egg Marketing Board? It was tongue in cheek.

But, since Simon indicated in his earlier blog that the skipper likes to use naval references in his speeches, I'll offer up this one for future use: "If Captain Bligh had not such an inflated ego, and had kept his crew's expectations low, he could have kept his Bounty".

"I have seen any number of people who lived through those times who regard double digit inflation and nominal interest rates with unveiled contempt."

Personally, I'm with Frances on this one. I also know senior who lived through the inflation of the 60s and 70s who view with unveiled contempt (okay....more like resignation) the low interest rates they're getting on their retirement savings.

Phil Koop:
"But are you seriously saying that ... a regional Fed president sees no reason to examine financial crises in other developed economies when formulating policy for America?"

No, I'm saying that he and his staff do not seem to have examined it yet.

Let's face it,
1) Not many (American? North American?) macroeconomists or monetary policy types pay attention to this literature,
2) This fact doesn't make the Dallas Fed look better; it makes most everything else look worse.


JVFM: Your understanding of his argument sounds right to me.

"No, I'm saying that he and his staff do not seem to have examined it yet."

So that's all right then. What's the rush?

I'm with Frances on this one: I grew up in the 70s, and inflation seems normal to me, although something potentially dangerous and worth keeping an eye on. So normal that only recently did I start wondering how one could manage to retire in a very low interest environment with low-risk financial assets providing such a minuscule income. If you don't lose your job in this recession you still might get hit trying to retire later. Our society, and especially the US, is just not designed to handle long and deep recessions, let alone a decade of deflation.

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