The current economic mess is evidence of a problem that government officials were too slow to address, says Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. In describing the role of the nation’s central bank, Fisher referred to a former Fed chairman who said the Federal Reserve’s responsibility is to “take away the punch bowl just as the party gets going.”
“We’re in the midst of experiencing the consequences of the failure to take away the punch bowl,” Fisher says. “We must never allow this to happen again. But first we must deal with the situation at hand.”
Fisher says the Federal Reserve has made a robust effort to help keep credit flowing. “We’ve reached deep into our tool kit to lend by every possible means and in modes never adopted before. We have been neither scanty nor slow. In rapid order, the Federal Reserve has stretched out the terms with which we lend to bankers, accepted new forms of collateral, (and) broadened access to our lending window to securities dealers.”
Recognizing that the global economy is inextricably interwoven, Fisher says the Fed has also established swap lines to help meet the dollar-funding needs of 14 central banks around the world. He also notes the Fed is providing substantial intellectual input to assist other regulators such as the Federal Deposit Insurance Corporation and the U.S. Treasury Department.
“This combination of measures, together with an effective Fed funds rate of less than 1%, is unprecedented. We believe they are a necessary antidote to what ails the economy and a needed impetus for the restoration of confidence,” Fisher says.
He adds there are limits to what the central bank can do. “Our efforts must be complemented by fiscal policy and by initiatives undertaken by other regulators. And we also know that it will take time before confidence is reestablished.”
The crisis at hand is troubling, Fisher says, “But Americans are a resilient people and our economy will bounce back.”
-- Texas Cattle Feeders Association release