January 6, 2009 EXTENSIONS OF REMARKS, Vol. 155, Pt. 1 207 facing a projected $1 trillion in deficit spending club nominates a candidate to run for the are helping restore confidence while the for this fiscal year, there is now $56 trillion in presidency on the Alfalfa Party ticket. Of credit markets undertake self-corrective ini- unfunded mandates through Social Security, course, none of them ever win. Nominees are tiatives and lawmakers consider new regu- thenceforth known for evermore as members latory schemes. Medicare and Medicaid, a number which will of the Stassen Society, named for Harold I am also not going to engage in a discus- only continue to grow and has increased by Stassen, who ran for president nine times sion of present monetary policy tonight, ex- $3 trillion in the last year alone. Funding the and lost every time, then ran a tenth time on cept to say that if inflationary developments deficit means that U.S. must attract approxi- the Alfalfa ticket and lost again. The motto and, more important, inflation expectations, mately $2 billion a day from foreign countries of the group is Veni, Vidi, Defici—‘‘I came, I continue to worsen, I would expect a change or risk a drop in the value of the dollar. saw, I lost.’’ of course in monetary policy to occur sooner I believe that this is an economic, moral, Bill Martin was nominated to run and lose rather than later, even in the face of an ane- and generational issue. Is it right for one gen- on the Alfalfa Party ticket in 1966, while mic economic scenario. Inflation is the most eration to live very well knowing that its debts serving as Fed chairman during Lyndon insidious enemy of capitalism. No central Johnson’s term. In his acceptance speech, he banker can countenance it, not least the will be left to be paid by their children and announced that, given his proclivities as a men and women of the Federal Reserve. grandchildren? central banker, he would take his cues from Tonight, I want to talk about a different In the past few days numerous sources the German philosopher Goethe, ‘‘who said matter. In keeping with Bill Martin’s advice, have reported that the economic stimulus bill that people could endure anything except I have been scanning the horizon for danger on the agenda of the soon to be Obama ad- continual prosperity.’’ Therefore, Martin de- signals even as we continue working to re- ministration is expected to cost between $675 clared, he would adopt a platform pro- cover from the recent turmoil. In the dis- billion and $775 billion. Other reports say it claiming that as a president he planned to tance, I see a frightful storm brewing in the could expand to as much as $1 trillion. What- ‘‘make life endurable again by stamping out form of untethered government debt. I ever package is passed, Congress has a his- prosperity.’’ choose the words—‘‘frightful storm’’—delib- ‘‘I shall conduct the administration of the erately to avoid hyperbole. Unless we take toric opportunity to work in a bipartisan way to country,’’ he said, ‘‘exactly as I have so suc- steps to deal with it, the long-term fiscal sit- address the Nation’s looming financial crisis cessfully conducted the affairs of the Federal uation of the federal government will be un- by including a mechanism to deal with the un- Reserve. To that end, I shall assemble the imaginably more devastating to our eco- derlying problem of autopilot spending. The bi- best brains that can be found . . . ask their nomic prosperity than the subprime debacle partisan SAFE Commission I introduced with advice on all matters . . . and completely and the recent debauching of credit markets Rep. JIM COOPER in the 110th Congress would confound them by following all their con- that we are now working so hard to correct. create a national commission to review entitle- flicting counsel.’’ You might wonder why a central banker ments with everything—including tax policy— It is true, Bruce, that as you said in your would be concerned with fiscal matters. Fis- introduction, I am one of the 17 people who cal policy is, after all, the responsibility of on the table. This idea garnered the support of participate in Federal Open Market Com- the Congress, not the Federal Reserve. Con- over 100 members during the 110th Congress. mittee (FOMC) deliberations and provide gress, and Congress alone, has the power to Senate Budget Committee Chairman KENT Ben Bernanke with ‘‘conflicting counsel’’ as tax and spend. From this monetary policy- CONRAD and ranking member JUDD GREGG in- the committee cobbles together a monetary maker’s point of view, though, deficits mat- troduced similar legislation, which has also policy that seeks to promote America’s eco- ter for what we do at the Fed. There are gained momentum. The time is now. nomic prosperity, Goethe to the contrary. many reasons why. Economists have found I share with our colleagues a speech by But tonight I speak for neither the com- that structural deficits raise long-run inter- Richard W. Fisher, president of the Federal mittee, nor the chairman, nor any of the est rates, complicating the Fed’s dual man- Reserve Bank of Dallas. ‘‘Storms on the Hori- other good people that serve the Federal Re- date to develop a monetary policy that pro- serve System. I speak solely in my own ca- motes sustainable, noninflationary growth. zon’’ is a sobering account from a monetary pacity. I want to speak to you tonight about The even more disturbing dark and dirty se- policymaker’s point of view on why deficits an economic problem that we must soon con- cret about deficits—especially when they ca- matter. Mr. Fisher calls the mathematics of front or else risk losing our primacy as the reen out of control—is that they create po- doing nothing to change the long-term outlook world’s most powerful and dynamic econ- litical pressure on central bankers to adopt for entitlements, ‘‘nothing short of cata- omy. looser monetary policy down the road. I will strophic.’’ Forty-three years ago this Sunday, Bill return to that shortly. First, let me give you The 111th Congress will have on its watch Martin delivered a commencement address the unvarnished facts of our Nation’s fiscal this unfolding reality. What will we do to make to Columbia University that was far more predicament. sober than his Alfalfa Club speech. The open- Eight years ago, our federal budget, craft- a difference for our country’s—and our chil- ing lines of that Columbia address were as ed by a Democratic president and enacted by dren’s and grandchildren’s—future? follows: ‘‘When economic prospects are at a Republican Congress, produced a fiscal sur- STORMS ON THE HORIZON: REMARKS BEFORE their brightest, the dangers of complacency plus of $236 billion, the first surplus in al- THE COMMONWEALTH CLUB OF CALIFORNIA, and recklessness are greatest. As our pros- most 40 years and the highest nominal-dollar SAN FRANCISCO, CALIFORNIA, MAY 28, 2008 perity proceeds on its record-breaking path, surplus in American history. While the Fed (By Richard W. Fisher) it behooves every one of us to scan the hori- is scrupulously nonpartisan and nonpolitical, Thank you, Bruce [Ericson]. I am honored zon of our national and international econ- I mention this to emphasize that the deficit/ to be here this evening and am grateful for omy for danger signals so as to be ready for debt issue knows no party and can be solved the invitation to speak to the Common- any storm.’’ only by both parties working together. For a wealth Club of California. Today, our fellow citizens and financial brief time, with surpluses projected into the Alan Greenspan and Paul Volcker, two of markets are paying the price for falling vic- future as far as the eye could see, economists Ben Bernanke’s linear ancestors as chairmen tim to the complacency and recklessness and policymakers alike began to con- of the Federal Reserve, have been in the Martin warned against. Few scanned the ho- template a bucolic future in which interest news quite a bit lately. Yet, we rarely hear rizon for trouble brewing as we proceeded payments would form an ever-declining about William McChesney Martin, a magnifi- along a path of unparalleled prosperity share of federal outlays, a future where cent public servant who was Fed chairman fueled by an unsustainable housing bubble Treasury bonds and debt-ceiling legislation during five presidencies and to this day holds and unbridled credit markets. Armchair or would become dusty relics of a long-forgot- the record for the longest tenure: 19 years. Monday morning quarterbacks will long de- ten past. The Fed even had concerns about Chairman Martin had a way with words. bate whether the Fed could have/should how open market operations would be con- And he had a twinkle in his eye. It was Bill have/would have taken away the punchbowl ducted in a marketplace short of Treasury Martin who wisely and succinctly defined that lubricated that blowout party. I have debt. the Federal Reserve as having the given my opinion on that matter elsewhere That utopian scenario did not last for long. unenviable task ‘‘to take away the punch- and won’t go near that subject tonight. What Over the next 7 years, federal spending grew bowl just as the party gets going.’’ He did counts now is what we have done more re- at a 6.2 percent nominal annual rate while himself one up when he received the Alfalfa cently and where we go from here. Whatever receipts grew at only 3.5 percent. Of course, Club’s nomination for the presidency of the the sins of omission or commission com- certain areas of government, like national United States. I suspect many here tonight mitted by our predecessors, the Bernanke defense, had to spend more in the wake of 9/ have been to the annual Alfalfa dinner. It is FOMC’s objective is to use a new set of tools 11. But nondefense discretionary spending one of the great institutions in Washington, to calm the tempest in the credit markets to actually rose 6.4 percent annually during D.C. Once a year, it holds a dinner devoted get them back to functioning in a more or- this timeframe, outpacing the growth in solely to poking fun at the political preten- derly fashion. We trust that the various term total expenditures. Deficits soon returned, sions of the day. Tongue firmly in cheek, the credit facilities we have recently introduced reaching an expected $410 billion for 2008—a

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