Fisher’s Comments about Recovery

In a recent July 13th speech, President and CEO of the Federal Reserve Bank of Dallas offers remarks about the nature of the economy and its prospects for growth. Acknowledging his location, he starts out, “Texas is an oasis in a national economic desert devoid of life-giving job creation.” He comments about the state of government leaders saying:

“Rather than work like ants to build and store for difficult times … authorities have been proverbial grasshoppers. They have partied along for decades using people’s money as though life were an endless summer… A fiscal reckoning is upon us.” While taxes and spending must find a better balance in the future, he alludes to bending the curve, ie., reversing the inexorable growth in federal debt accumulation. Our political leaders must develop an entireley new structure of incentives for private businesses and investors, he says.

U.S. banks and businesses are awash in liquidity, and adding more is not an answer to the problem, Fisher adds. With respect to forecasts, for which he finds as planning tools and not gospel, the direction of the numbers (positive or negative) and momentum are important. Essentially, the Fed has “reliquified” the economy. First half GDP sluggishness he expects to give way in the second half of 2011 to acceleration partly because of inventory adjustments from an unwinding of supply disruptions caused by the Japanese earthquake and tsunami.

Fisher is more optimistic. American workers and businesses have made strides in efficiency and competitiveness, which should pay off in the future. And a sound long-run budget deal can provide even better tailwinds to recovery. Then the “post-traumatic shock syndrome” identified and described by Fisher may soon be a faint memory.

See Speech by Fisher.

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