FOMC’er Richard “Inspector Clouseau” Fisher and His Excellent Rare Book Price Clue to Proper Monetary Policy

Dallas Fed President and again voting FOMC member Richard “Inspector Clouseau” Fisher is back from fresh sleuthing, and in-hand has a key clue as to proper monetary policy going forward.

It’s rare book prices.

An avid antiquarian bibliophile, Fisher enthused about the depression-type prices on collectible books around the 2008 bust, in a speech delivered to the National Association of Corporate Directors in Dallas on Jan. 14.

“During the financial debacle of 2007–09, I was able to buy for a song volumes I have long coveted, including a mint-condition first printing from 1841 of Mackay’s Memoirs of Extraordinary Popular Delusions, which every one of you should read,” enthused Fisher.

But happy hunting in book-land is over, Fisher complained. “Today, I could not afford them. First editions, like paintings, sculptures, fine wines, Bugattis and homes in [exclusive] Highland Park or River Oak” are too expensive.

Loose monetary policy is to blame, and investors in the collectible world are running around with “beer goggles,” grumped Fisher.

Now, others might have a different take on the reason for rising prices in the word of collectibles, or more importantly (at least to most economists, if not Fisher), in real estate and the stock market.

The reason for higher asset prices since 2009 is a so-so economic recovery prodded by a mildly expansionary monetary policy, or so might say many economists. Prosperity, even if limited, is helping asset prices.

As to the collectible and art side of “investing,” skyward prices can probably be laid at the feet of global class of super-wealthy, who meet their material needs with the smallest sliver of their wealth and income, and have ready mountains of cash to acquire fancies.

The Fed and nominally low interest rates made someone pay $127 million (at recent auction) for a triptych of rather blah paintings by Francis Bacon?

No, this is not a rant against income inequality. I prefer free markets, and you take the good with the…questionable.

Tighten Money Now!

No matter, Fisher wants the Fed to stomp on the brakes and quit Quantitative Easing (QE) now, and preferably yesterday. Indeed, Fisher proudly told his audience he would have been a bulwark against QE, if he could have been.

“I basically said so [no more QE] publicly on March 26, 2009, in a speech to the RISE Forum, an annual student investment conference,” said Fisher in Dallas.

But he was outvoted on the FOMC, glumly noted Fisher. The $2 trillion in QE since then was not wise, he said.

Since 2009 the S&P 500 is up more than 50 percent, and real estate markets have partially recovered.

Having become uncomfortably obsessed with Fisher over the last three years (it’s like

watching those youtube clips of car wrecks or building demolitions), I can tell you that for Fisher, the right time for tight money is like the right time to have a drink, for an alcoholic.

After all, Fisher is the central banker who visited Japan in April 2009 and delivered a speech that included this: “I consider inflation an evil spirit that rots the core of economic prosperity and must never, ever be countenanced.”  Did I mention Fisher said that in Japan?

Were not for the ramifications of Fisher’s perspective, some aspects of Fisher’s tight-money fixation would be comical: In his entire Dallas speech, Fisher mentioned not once the inflation index used by the Fed, the PCE deflator. Oh, that?

Well that it is that Fisher does not talk abut price indexes, as opposed to the booming rare-book market: The PCE deflator is now below 1 percent and falling. That is less than one-half the Fed’s target rate.

Moreover, for the last 30 years Western economies have seen a secular swoon in inflation, along with interest rates. Japan, and now Europe, and the USA are all close or in the zero lower bound, or ZLB.

It is hard to believe that with global economies struggling for five years running and prices flat as a board (excepting mainland China), that any central bankers would still be obsessed with inflation.

Well, there is Fisher. He told the Dallas assembled that the “velocity of money will accelerate,” in a recovery, and that would set up conditions to “create inflation or financial market instability or both.” The bogeyman inflation has a new sidekick, that of “financial instability,” we note.

The Fed’s QE program, Fisher further darkly warned the assembled, has “made for an intoxicating brew as we have continued pouring liquidity down the economy’s throat.”

It is a curious trait of inflation-hysterics that they are often contemptuous of private investors operating in free markets, otherwise touted as a basic and strong fundamental of capitalism. The Fishers of the world suggest that private-sector investors will drop like avalanches into unwise schemes, if only interest rates are too low.

Indeed, many of today’s investors are foolish, even those belonging to sophisticated institutions, according to Fisher.

In Dallas, Fisher roundly dismissed current investors in distressed enterprises, held that they are badly overpaying for assets, and sneered, “Today, I would have to hire Sherlock Holmes to find a single distressed company priced attractively enough to buy.”

But not Inspector Clouseau?

Fisher’s position is akin to economist John Cochrane’s sentiment that in a low-interest rate environment, corporate managers will over-allocate funds to plant and equipment.

 Thus, free enterprise is an inherently unstable platform easily upended by feeble-minded money managers and buffoon corporate chieftains, in this gloomy vision held by Fisher and people who are ostensibly right-wingers.And so Richard Fisher, Dallas Fed Chief, must ever-vigilantly guard the nation against excesses by people with money to throw around—that is to say, private-sector investors, corporations and rare-book collectors.It is a strange world when right-wingers and central bankers affirm that prosperity and free enterprise…do not mix.

Funny, I rather like the combination.

About the Author

Marcus Nunes
João Marcus Marinho Nunes is a partner of Phynance Estratégias Quantitativas e Investimentos and a professor of Economics at Fundação Getúlio Vargas in São Paulo, Brazil. He also blogs here: http://thefaintofheart.wordpress.com/

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