In a dynamite interview, Richard Fisher, former president and CEO of the Federal Reserve Bank of Dallas, gave what may be the biggest confession you’ll ever see and hear from a Federal Reserve insider:
- the Federal Reserve knowingly “front ran” the US stock market recovery (i.e., manipulated the market) and created a huge asset bubble and
- the “juiced” stock market will come down and is coming down now that the Fed has taken its foot off the accelerator … and has a long way yet to go.
By David Haggith (The following article consists of edited ([ ]) and abbreviated (…) excerpts from the original, as posted on thegreatrecession.info/blog/, to provide a fast and easy read.)
While that is no news to readers here whose eyes are wide open, a “market put” has been denied by the Fed and by many market experts. That the market was a bubble created by the Fed has been denied, too; but Fisher clearly and strongly admits the Fed created a bubble that will have to deflate now that the Federal Reserve’s stimulus is back off.
As one of the members of the Federal Reserve’s FOMC (the Federal Open Market Committee, which sets U.S. monetary policy). Richard Fisher participated in, and voted on, all of the Fed’s policies of zero interest and quantitative easing, so he has insider knowledge of all the discussions behind the scenes at the Fed.
Here are the significant quotes from Richard Fisher on CNBC’s video:
What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.
It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow.
I’m not surprised that almost every index you can look at … was down significantly.
Basically, we had a tremendous rally, and I think there’s a great digestive period that is likely to take place now, and it may continue.
We front-loaded at the Federal Reserve an enormous rally in order to accomplish a wealth effect.
I wouldn’t blame [what is happening] on China. We’re always looking for excuses.
It’s going to take awhile to digest this. I wasn’t surprised at last year and I wouldn’t be surprised at a rather fallow performance this year as well.
All of the managers I talk to — a lot of people are building cash positions…. Those [investors] that are taking a longer term view are being extremely cautious here, are raising their cash levels, are nervous about the valuations that are in the market.
The values are very richly priced here, so I could see significant downside. I also could see just flat market for quite some time.
Asked if saw a big unwind from the Fed’s 6.5-year policy and what it would look like on the way down, Fisher responded,
I was warning my colleagues, “Don’t go wobbly if we have a 10-20% correction at some point…. Everybody you talk to … has been warning that these markets are heavily priced.”
The Federal Reserve is a giant weapon that has no ammunition left.
You have to be careful here and frank about what drove the markets…. It was, the Fed, the Fed, the Fed, the European Central Bank, the Japanese Central bank … all quantitatively driven by central bank activity. That’s no the way markets should be working…. They were juiced up by central banks, including the Federal Reserve…. so, I think you have to acknowledge reality.
…and acknowledging reality is what many in the mainstream media refused to do.
Now that the U.S. stock market appears to be crashing, is this confession by Richard Fisher to cover his own hind end, by saying, “I warned the guys about this, and I voted against QE3 because I knew it went too far?” Is he just the first rat to flee the sinking ship, or is he just the most honest of Fed officials who is now not on the board and so feels freer to talk?
Your thoughts? (Please pass the confession along so that it gets lots of play time because you don’t get a confession like this about the inner arguments of the Fed very often. I imagine Yellen is doin’ a little yellin’ right now.)