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Churchill, Baruch, Lindsay Lohan,
Congress and the Fed
Remarks at the Institute of International Bankers Annual
Washington Conference

Richard W. Fisher
President and CEO
Federal Reserve Bank of Dallas

Washington, D.C.
March 7, 2011

The views expressed are my own and do not necessarily reflect official positions of the Federal Reserve System.

Churchill, Baruch, Lindsay Lohan, Congress and the Fed
Richard W. Fisher
Winston Churchill was in New York on Oct. 29, 1929, Black Thursday. Bernard Baruch took
him to dinner that night with some 40 or so luminaries of finance―“friends and former
millionaires,” Baruch called them. Churchill listened and, over the course of the evening and the
next few days, took measure of the situation. He recorded his impression as follows: No one
“could doubt that this financial disaster, huge as it is, cruel as it is to thousands, is only a passing
episode in the march of a valiant…people who…are showing all nations much that they should
attempt and much that they should avoid.” 1
The historian Martin Gilbert later wrote that in the face of a fearful crisis, Churchill had seen the
United States “at its most magnificent and its most tormented.” 2
Move the clock forward 82 years. We have no one on the world stage as eloquent as Churchill.
But even the most prosaic observer might now be given to repeating the Last Lion’s observation:
The financial disaster of 2008 and 2009 was huge. It was cruel not to thousands but to millions
of Americans who lost their jobs and saw their savings and standard of living decimated. And
yet, painful as it was―and remains for so many―it is proving to be a passing episode in the
onward march of a valiant people.
In coping with the crisis and its aftermath, we have seen America at its most magnificent and its
most tormented. We have shown others much that they should attempt and much that they should
You all know what transpired over the past few years, so let me give you an abridged version to
set the stage of lessons learned and what I believe we now confront.
During the recent Panic, the most important ingredient in the functioning of financial
markets―trust in counterparties—imploded. The liquidity required to finance the business of
America disappeared. Interbank lending evaporated. Risk premiums soared. The commercial
paper market faltered. A hallmark money market fund “broke the buck.” Asset-backed security
lending stopped cold. The entire spectrum of financing for businesses collapsed; the gears of the
American economy went into reverse. Seemingly overnight, we were transformed from a grand
vessel that had been sailing along on the tranquil sea of the Great Moderation into a battered
wreck tossed about in a perfect storm threatening to dash us on the rocks of deflation, depression
and ruin.
Eager to avoid the mistakes made by our predecessors during the 1930s, and led by an
unassuming but determined chairman, the Federal Reserve created a panoply of programs to
revive the key financial markets. In the face of widespread fear among businesses and the
broader public, consternation among financial operators, and a great deal of breast beating by
politicians threatening to compromise the independence that is so vital to operate a successful
central bank, the Fed stepped into the breach. It did so in keeping with the ultimate duty of any
central bank as lender of last resort: Drawing on emergency powers previously given us by the

Congress, we addressed the exigent circumstances we faced by opening the floodgates to restore
the credit markets and pull the economy back from the brink.
The long and short of it all was that the medicine applied by the Federal Reserve worked.
Whereas, then there was no liquidity to finance our economy, now there is plenty: Money is
cheap; banks and credit markets are flush; the stock market has soared. Financial wherewithal is
widely available to businesses, public and private, that have the capacity to put the American
people back to work.
To be sure, there are some, including me, who worry that the Fed ultimately may have taken out
too much insurance against a double-dip recession and slippage into a deflationary spiral. There
are some, including me, who argued against the last tranche of insurance we took out in
committing to buy $600 billion in U.S. Treasuries between last November and the end of this
coming June as we were simultaneously purchasing additional Treasuries to make up for the roll
off in our mortgage-backed securities portfolio. There was a strong feeling among those of my
policy persuasion that we had already sufficiently refilled the tanks holding the financial fuel
businesses needed to drive their job-creating machines. They felt that by being too
accommodative, we might run the risk of planting the seeds that could germinate into renewed
volatility, speculation and inflation, or give comfort to a government that for far too many
congressional cycles has fallen down on the job by spending and borrowing and committing to
unfunded programs with reckless abandon.
But whether you feel that the Federal Reserve has gotten it just right or gone a bit beyond the call
of duty, it is hard for anyone to argue that the Fed did not succeed in pulling the financial
markets back from the brink and has successfully reliquefied the economy, restoring the flow of
the vital lifeblood of commerce.
In an interview published in the Dallas Morning News on Aug. 26, 2009, I said the Great
Recession was over but that the healing process would take time before gathering momentum
and resulting in meaningful job creation.3 (It took the National Bureau of Economic Research, or
NBER, 15 months to reach the same conclusion,4 leading one of my most prominent colleagues
on the FOMC to quip: “And the NBER is expected to soon tell us that Christmas last year
occurred on Dec. 25!”) We now know the economy bottomed in the second quarter of 2009 and
has slowly been gaining momentum since then. As is evident in the latest round of data, a
recovery is well under way.
By acting with purpose, I believe the Federal Reserve, in the words of Winston Churchill, did its
part to show the world “much that should be attempted and much that they should avoid.” We
demonstrated that a lender of last resort must avoid being timid in the face of a crisis. We
showed our nation, and others who look to us for leadership, that central banks must act
deliberately and conduct their duties doggedly, however intense the criticism or political heat.
But we also revealed the price of acts of omission—that an institution ultimately responsible for
maintaining financial stability can ill afford to be lax in its duties as a regulator and supervisor of
systemically critical financial institutions under its jurisdiction―a failure we have taken
significant organizational steps to correct and are working hard to avoid letting happen again.
I happen to believe one of the best outcomes of the crisis is that the Fed demonstrated the
importance of a central bank keeping its word. We said we would close the numerous emergency

programs we engineered once they had done their job. And we have thus far done so. Imagine
that: A government agency that (a) does what it says it will do; (b) actually closes down
programs once they have served their purpose; and (c) not only does not lose taxpayer money in
the process but makes a profit for the Treasury from it.
Yet, though the recovery is gaining strength, we still have a long and arduous path ahead of us. I
managed a grin when I read the giddy headline on the release last Thursday of the latest survey
of the National Federation of Independent Business: In bold capital letters it proclaimed, “Whoo
Hooo. Best Job Creation Number in 3 Years!!” 5 But I suppressed a more fulsome smile. The
news is better; job creation is gathering momentum; the economy is moving in the right
direction. But it is worrisomely clear that the task of putting millions of unemployed and
underemployed Americans back to work will take an anguishing amount of time.
I do not, however, feel that further monetary accommodation will speed the process. It might
well retard job creation, should it give rise to inflationary expectations or, worse, imply that,
having suffered the slings and arrows of popular and political contempt as we went about doing
what we did to save the financial system, we have now been compromised and become a pliant
accomplice to Congress’ and the executive branch’s fiscal misfeasance. I am wary of those risks.
Indeed, as a voting member of the FOMC this year, I have made clear within the meeting room
and in public speeches that, barring some frightful development, I will vote against any program
that might seek to extend or enlarge the substantial monetary accommodation we already have
provided, just as I argued against the $600 billion extension the voters on the Committee
approved last November. And I remain doubtful enough as to its efficacy that if at any time
between now and June, it should prove demonstrably counterproductive, I will vote to curtail or
perhaps discontinue it. As I said, the liquidity tanks are full, if not brimming over. The Fed has
done its job. What is needed now is for business to be incentivized to commit that liquidity to
creating American jobs. This is the task of the fiscal authorities, not the Federal Reserve.
Here, I see the America that Churchill described as being “at its most magnificent and its most
The backbone of our economy, private business, is magnificently lean and fit. American business
operators began to trim down and shape up their operating efficiency during the inflationary
scare that threatened their profits running up to the summer of 2008. When the wheels came off
the bus that fall and demand collapsed, they drove themselves to still greater efficiency to
preserve their bottom lines or just to survive. The most expensive cost for most all businesses is
labor. Over the past cycle, American businesses have learned to use the least amount of workers
to drive the most amount of productivity. Today, our economy produces as much output as it did
in 2007 before the onset of the crisis. But it uses over 7 million fewer workers to do so. From an
economic standpoint, this efficiency is, indeed, a magnificent thing. And yet widespread
unemployment is tormenting our society. The vexing question is: How will millions of
Americans be put back to work in timely fashion?
All business operators, public or private, large or small, have a duty to their shareholders or their
creditors to earn the highest return on investment possible. In a globalized economy, they can go
anywhere on earth to do so. They can invest in China. Or India. Or Vietnam or Singapore or
Brazil or Mexico or Africa. Or anywhere in an expanded, post-Cold War Europe. Nothing short
of the poison of capital controls or protectionism can prevent them from doing so. Which raises

the question: What must now be done to get businesses to invest in job creation here at home
with the cheap and abundant money the Fed has made possible?
The obvious answer is that they must have confidence in the future of America. Businesses, like
any other economic actor, will respond to immediate tax and regulatory incentives. But to make
long-term investment decisions that create permanent, remunerative jobs they must have
confidence in the long-term prospects of where they invest. In my judgment, it will be hard to
secure that needed comfort until Congress makes clear it will refrain from the errant fiscal ways
of the past, changes the way it taxes and spends and regulates, and places the nation
demonstrably, and unalterably, on a path of fiscal rectitude.
I was quoted in the Washington Post on Feb. 21 as saying that we had suffered for too long from
“Lindsay Lohan” Congresses.6 Like Ms. Lohan, the American Congress is a beautiful creation,
blessed with enormous talent. But it has been waylaid by addiction—in the case of the Congress
to spending and debt―and by a proclivity for shoplifting―in the case of the Congress to
pocketing for their immediate gratification the economic future of our children and grandchildren
and our grandchildren’s children.
Reasonable arguments can be made that fiscal policy must loosen during cyclical downturns to
provide an economic environment conducive to growth. Some economic research even points to
deficit spending as an essential ingredient for recovery when interest rates are near the so-called
zero bound or the Fed has reached the limit of prudent monetary accommodation through other
means. We certainly have put that theory to the test during the past two fiscal years, running
deficits of $1.3 trillion in 2010 and an expected $1.65 trillion in 2011.
What’s troubling about the fiscal situation, however, is the likelihood of persistent large yearly
deficits long after the current recession is behind us. The same economic theory that prescribes
deficits during recession prescribes surpluses during recovery to help meet the next economic
challenge that might develop. If current deficits were exclusively due to cyclical phenomena, one
would expect to see surpluses as we distance ourselves from the Great Recession we have just
experienced. Instead, as far as the eyes of the analysts at the Office of Management and Budget
can see, deficits will remain slightly above the 3 percent GDP threshold at which it is feared
significant crowding-out of private sector economic activity begins to appear.7 And other
observers, under less optimistic assumptions, foresee significantly higher deficits in the years
The U.S. economy is afflicted with the pathology of structural deficits. This leaves the nation
poorly positioned to weather the next recession or shock to come our way. I devoutly hope our
next downturn won’t come for quite some time, but it surely will come eventually. Will we
follow the lead of the biblical Joseph, storing fiscal grain during boom times in preparation for
the lean times that will, inevitably, someday follow? Or will we take the opposite course and run
larger-than-normal deficits every year, hindering our ability to respond when the current
expansion ends or an unforeseen crisis occurs, thereby undermining the confidence needed by
businesses to commit sustainable job-creating capital here at home?
It is important to note that institutionalized deficits are cruelest to future generations. What has
made the United States an exceptional economic haven for investment and growth has been the
certain knowledge that the successor generation would enjoy a better standard of living than the

current one―that ever-expanding prosperity was built into the system. Encumbering future
generations with debt dashes that promise. Instead of passing the torch of prosperity to the
successor generation, the fiscal authorities have been passing them the bills. If our Congress
continues to provide more in services than they are willing to collect in taxes, it is a
mathematical certainty that the well-being of our progeny will suffer. Correcting this pernicious
dynamic is imperative for assuring our economic future.
It is not the job of the Federal Reserve to conduct fiscal policy. It is not for me or any other
Federal Reserve official to advise Congress on particular tax or expenditure choices. Yet the
overall stance of fiscal policy is very much relevant to monetary policymakers. A large and
growing government debt inevitably places pressure on the Federal Reserve to hold interest rates
too low for too long, making it more difficult for the Fed to fulfill its dual mandate of price
stability and full employment.
Throughout history, feckless governments have dodged their fiscal responsibility by turning to
their monetary authority to devalue the currency, monetize debt and inflate their way out of
structural deficits If we are to live up to Churchill’s charge to show the world what must be
avoided, the world’s foremost central bank―keeper of the premier reserve currency and bulwark
against its debasement―cannot, and must not, ever succumb to such pressure. It is thus best for
everyone―future generations and the current one alike―that our fiscal leaders not go there. For
such an action would precipitate a showdown that would be anything but “magnificent” to
behold. Congress and the executive branch thus have no choice but to now suck it up, make
some painful choices and get on with the business of putting our valiant nation on a more
sustainable fiscal course. I, for one, am pleased to see that a dialogue toward this end has begun.
Let us hope it results in meaningful action.
Thank you.

Best Little Stories From the Life and Times of Winston Churchill, by C. Brian Kelly and Ingrid Smyer-Kelly,
Nashville: Cumberland House Publishing, 2008, p. 169.
See note 1. Also see Churchill and America, by Martin Gilbert, New York: Free Press, 2005.
“Recession Over, Dallas Fed Chief Says, But Jobs Lag,” by Brendan Case, Dallas Morning News, Aug. 26, 2009.
A full report covering the National Federation of Independent Business’ latest survey of small business
development will be released on March 8.
“Dallas Fed President: ‘We’re Moving Forward,’” by Neil Irwin, Washington Post, Feb. 21, 2011.
These figures come from the president’s 2012 budget, available online at