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Dallas Fed goes to Mexico City

Richard W. Fisher is the President of the Dallas Federal Reserve Bank. He is also among the dissenters from the Federal Reserve’s Open Market Committee policy of loose money.

He also grew up in Mexico City, where he returned this month to deliver a speech of some considerable consequence.

Fisher delivered this speech en español , so far as I can tell, and his praise for the progress of Mexican economic liberty is only the more striking for having been endorsed by so prominent a figure as the President of the Dallas Fed.

Mexico deserves abundant praise for reforming toward free markets and free trade and free labor. The careful auditor or reader of this speech probably detected a concealed text. The business environment in Mexico may well be better than that of America.

A sobering thought.

But let me say with all assurance that I do not for a moment begrudge Mexico gains in this area. Let liberty reign in Mexico! If America should falter on this course to free labor, free trade and free markets, let Mexico raise that noble banner in her stead.

Considerable weight has been laid upon Pres. Fisher’s comments concerning quantitative easing and interest rates, and of course his characterization of potential asset bubbles as “eye-popping.”

It should be recalled that Fisher is Texan. He subtly reminded the Banco de Mexico that Texas now pumps more oil than Mexico. All the more reason to cheer the Mexican turn toward economic freedom in opening up energy to foreign direct investment.

The Federal Reserve is dialing back its QE. It has also turned over $300 billion in profits to the Treasury. That’s deficit reduction, though of a curious sort.

Let us hope two things at least: that Fisher’s pessimism concerning loose money is misplaced, and that Mexico continues on the course he so warmly and justly compliments her on.

Comments (10)

Wouldn't Mexico need to get a much better grip on its drug cartels, their unfortunate enablers in the government, and the threat all of that poses to the rule of law before it could really make dependable strides in free market economics?

Yeah, the anecdotal evidence seemed to be, just a couple years ago, that drug and gang and organized crime syndicates were so powerful that in whole swathes of the countryside, they were in control and government was not. Were those indications completely wrong? Or has Mexico gotten a handle on the problem that we didn't here about? Or is this article about the "other Mexico", the part that is still subject to ordinary law and order?

Safety is a serious concern. No doubt about it. The really bad violence is mostly confined to the northwestern estados, but kidnapping for ransom is a problem everywhere. This is unquestionably a deterrent to business. Here's hoping Mexico can get control of this.

The need to immigrate to the US will continue to recede which will be good for both countries.

Well, that will be good. Anything that draws some of the illegals back to where they came from. Maybe in the meantime they will have learned a useful skill that they can put to work back home?

Let me see if I have this right: According to Fisher, the Fed pumped dollars into the system by "buying" Treasury notes and Freddie Mac assets with those dollars? Is that what happened? If so, first of all, where did the dollars come from? And what is the Fed supposed to do with these things other than let someone else pay the Fed for them, and if so, how does the Fed unload their balance sheet of the worth of the assets?

I suppose that the dollars came from thin air. That's what the Fed does, isn't it? Do they just put an electronic tick-mark in a ledger that says "entity X now has 300 million more than yesterday", or is it more complicated than that?

Pretty much, Tony. The "quantitative" in QE is just that: new dollars. Primary dealers and commercial banks sell bond assets to the Fed, which pays them by digitally adding dollars to their accounts on reserve. The bond assets are then held on the Fed's balance sheet, some of them until expiration. The Fed simply returns interest payments to the Treasury.

And the way that the Fed avoids the inherently inflationary trap of such mythical dollars is, presumably, by keeping interest rates low, right? Interest rates and inflation typically rest a certain margin apart - usually about 3 to 4% between the inflation rate and the long term interest rate.

Does this approach actually short-circuit the inflationary spiral, or does it merely delay it for a time - primarily, for the time necessary for the interest rate to syphon out to non-US parties, like foreign central banks who eventually refuse to play with the funny money? It might take a long time before they decide to stop accepting the monopoly money, but IF NOTHING CHANGES in the way the Fed and the US gov finance themselves, it is a lock-solid certainty that they will get there eventually. What I find worrisome in someone like Fisher speaking as if the money were real is that there doesn't seem to be any acknowledgement of the possibility that the bill will ever come due.

Tony, that sort of apocalyptic rhetoric is completely divorced from reality. If anything the fed needs to create more inflation to devalue the real value of private debt and stimulate consumer spending.

Dunsany, knock it off. Go back to the minimum wage thread and answer Tony's question about justice.

Tony, the near-zero interest rate is part of the loose money policy. In fact, interest rates are the usual tool for monetary policy; QE is very unconventional.

As for what happens if/when inflation begins to accelerate, that's a big question mark. The Fed tries to keep alert to these things, but who knows if they really can anticipate effectively.

I think Fisher well understands that currency is based on social trust, not inherent value. It's a mean of exchange, not a storehouse of wealth.

If anything the fed needs to create more inflation to devalue the real value of private debt and stimulate consumer spending.

While also annihilating the buying power of the minimum wage. Anyone want to bet Dunsany is Mugabe's Finance Minister?

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