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Sunday, August 17, 2008

Dallas Fed Chief Speaks, and I listen

The Federal Reserve Board is comprised of various "Fed Chiefs" located around the country, one of them in Dallas Texas named Richard Fisher.
You can read his comments to a Dallas paper linked here, below are excerpts I found particularly interesting.
This isn't crackpot stuff, this is from a man with direct input on setting USA interest rates with respect to 30 year federal bonds and other financial instruments of lending.

The Alt A market had an enormous amount of low-doc and no-doc to it. There is sort of a balloon period of interest rate resets that starts in 2009. If you add that to subprime, the amount of resets in a three-year period – 2010, 2011, 2012 – is greater than anything we've seen.

My Spin: The mortgage crisis is just starting look for it to continue through 2012.

I do expect that after the Olympics, by the way ... inflationary forces will be increasing, not decreasing, in China. And I suspect we might feel the impact of that here.

My Spin: As China's expenses increase, they will pass their costs to USA and world in export costs, reversing the trend of lower prices we have enjoyed from "exporting" our inflation to china the last 10 years. Time to sell Walmart stock?

But you don't correct for the "excess excess" that we have experienced very quickly. We got carried away. I blame the regulators, including the Federal Reserve, for letting things get too far. Given that it went so far, given the natural pattern of the way creditors work, they sort of feel something is wrong, but they let it happen anyway, and then after the fact they slam the door shut. Bankers are getting much more parsimonious. And the credit markets are rough right now. ... So I expect us to have a rough patch here before we pull our socks up.

My Spin: Things will get worse before they get better, the BOTTOM IS NOT IN.

...the unfunded liabilities of Medicare. And I have not heard any discussion of what is the largest liability ever incurred by any country in history, relative to their GDP. Just to give you the number, it is $85.6 trillion that is currently unfunded. ... That's a lot. Our total output as a country is roughly $14 trillion.

My Spin: Reagan's plan of starve the beast is underway, (Advanced by Bush) and USA will achieve bankrupting social net (Social Security & Medicare) put into place during the last great depression. This will further free up profits of corporations long term by eventually reducing tax burden to pay for such programs.


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