While I enjoyed his piece, and found it eminently sensible, what really got my attention was this quote from Richard Fisher, President of the Dallas Fed, speaking of business leaders with whom he'd recently met,
"the politicians and officials who craft and enforce the rules are doing so in a capricious manner that makes long-term planning difficult, if not impossible. They are increasingly distressed by the lack of consistent direction coming from Washington....So they are calling time-outs and heading for the sidelines while they wait for the referees to settle the rules of the game."
Melloan then wrote,
"He added that no amount of further monetary accommodation can offset the retarding effect of heightened uncertainty. Indeed, it would make matters even worse if the private sector concludes hat the Fed has become "politically pliable and is prone to substitute such accommodation for fiscal discipline." "
I think it should give pause that a highly respected Fed bank president is so candid about Washington's negative influence on business activity. Fisher is a very non-partisan in his remarks.
Further, he clearly feels that Bernanke's planned, or expected injections of added liquidity, including more QE, will only "make matters worse," as the private sector grows suspicious of the Fed's motives and lack of discipline.
We do seem to be in a new era, where consumers and investors, thanks to ubiquitous, free information, have created a feedback loop of economic behavior neither existing nor envisioned
in Keynes' time.
That new loop is causing negative reactions to the government's excessive deficit spending, higher taxes and injection of uncertainty into the business environment via complex, poorly-considered legislation.
Fisher's highlighting of these phenomena ought to worry all of us. It's hard to foresee a healthy equity market, or economy, while the behaviors Fisher sees exist.