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Excerpts From “A Conversation About
Longhorns, Longnecks and Liquidity:
The Economy and the Course of Monetary Policy”
Remarks before the 9th Annual Alumni Business Conference
University of Texas at Austin McCombs School of Business

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

Austin, Texas
February 21, 2014

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

Excerpts From “A Conversation About
Longhorns, Longnecks and Liquidity:
The Economy and the Course of Monetary Policy
Richard W. Fisher
Texans drink a lot of beer—34.4 gallons per person in 2012 or the equivalent of 367 longnecks
in a year 1—so it may not come as a surprise to you that beer and money are inextricably linked.
About the same time our ancient forefathers invented beer some 10,000 years ago, rudimentary
money emerged on the scene in the then-dominant kingdom of Lydia. Of course, the law of
unintended consequences also took root to create another of man’s notorious developments: beer
goggles!
For those of you unfamiliar with the term “beer goggles,” the Urban Dictionary defines it as “the
effect that alcohol … has in rendering a person who one would ordinarily regard as unattractive
as … alluring.” While this Forty-Acres Scholar audience might substitute Tito’s Vodka or a
Chuy’s margarita for “longneck,” the effect is the same: Things often look better when one is
under the influence of free-flowing liquidity. If you don’t believe me, just visit Sixth Street
tonight.
This is a major theme of my remarks here today. No, not longnecks or other free-flowing
libations specifically, but the concept that too much liquidity can be a very dangerous thing.
William McChesney Martin, the longest-serving Fed chairman in our institution’s 100-year
history, famously said that the Fed’s job is to take away the punchbowl just as the party gets
going.
… In the remainder of my time with you here today, I will speak briefly about the operations of
the Dallas Fed and of the other 11 Federal Reserve Banks. Then I am going to comment on the
Texas economic recovery and speak extemporaneously on recent policy decisions taken by the
Federal Open Market Committee (FOMC). Finally, I am going to make a brief comment on the
depth of the punchbowl of liquidity the Fed has created, the reason I have advocated removing it,
and the sobering reality of the fiscal folly of our lawmakers in Washington, D.C.
… For far too long, the greatest obstacle to the nation’s economic prosperity has resided here:

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A straight-talker with a little salt on his tongue might be tempted to say: “It is fiscal policy that is
leading to the Californication of our national economy rather than its Texification.” But I would
not say anything so crude, so I am not going to say it. Instead, I’ll invoke an editorial in a recent
Financial Times that said it more politely: “Fiscal policy is still not an ally of U.S. growth.”
This is a picture of the gaping hole in the heart of our nation’s prosperity: If you remove the jobcreating machine of Texas from the U.S. economy, the nation has experienced job destruction
that has occurred over the past 12 years in the middle-income quartiles.

2

Job Growth by Wage Quartile,
2000-12
Percent change
35

31.0

30.3

30
Texas

25
20

U.S. minus Texas

18.6

15
10

9.7

10.4

9.9

5

0.9

0
-5
-6.9

-10
Lowest wage quartile

Lower-middle wage
quartile

Upper-middle wage
quartile

Highest wage quartile

NOTES: Calculations include workers over age 15 with positive wages and exclude the self-employed. Wage
quartiles constructed based on U.S. 2000 wage distribution.
SOURCE: Current Population Survey Merged Outgoing Rotation Groups, 2000, 2012.

I never refer to “classes”; I do not believe status in a democracy should be defined by the
hidebound concept of “classes.” But no matter: The most vital organ of our nation’s economy—
the middle-income worker—is being eviscerated.
This is the pathology I worry most about. So I ask: Can my colleagues and I at the Fed cure this
with monetary policy? Obviously, businesses cannot create jobs without the means for investing
in job-creating expansion, so, yes, monetary policy is necessary to propel job creation.
But as I have shown this afternoon, the store of bank reserves awaiting discharge into the
economy through our banking system is vast, yet it lies fallow. Take a look at this chart of total
reserves of depository institutions: They have ballooned from a precrisis level of $43 billion to
more than $2.5 trillion.

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Bank Reserves Have Ballooned
Billions, Reserves ($)
3000

Total Reserves of Depository Institutions

2,540

2500
2000
1500
1000
500
43
0
'07

'08

'09

'10

'11

'12

'13

'14

SOURCES: Federal Reserve Board of Governors, H.3 release.

Here is the point: There is plenty of money available for businesses to work with. Consider this:
In fourth quarter 2007 the nation’s gross domestic product (GDP) was $14.7 trillion; at year-end
2013 it was estimated to be $17.1 trillion. Had we continued on the path we were on before the
crisis, GDP would currently be roughly $20 trillion in size. That’s a third larger than it was in
2007. Yet the amount of money lying fallow in the banking system is 60 times greater now than
it was at year-end 2007. One is hard pressed to argue that there is insufficient money available
for businesses to put people back to work.
Now, bear in mind that we at the Fed only control the monetary base (cash plus bank reserves),
not the velocity with which money is used. Again, consider this graph:

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Newly Created Money Mostly
Sitting Fallow as Excess Reserves
Trillions of dollars
4.0
Excess reserves
3.5

Required reserves

3.0

Jan. 2014
$3.73T
Monetary
Base

Non-bank currency

2.5
2.0
1.5
Dec. 2007
$0.84T

1.0
0.5
0.0
'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

SOURCES: Federal Reserve Board; Federal Reserve Bank of Dallas.

Over the past six years, the monetary base has increased 340 percent, 10 times the rate at which
the economy would have expanded in nominal terms had we not suffered the recent recession.
One is hard pressed to argue that there is much efficacy derived from additional expansion of the
Fed’s balance sheet. This is why I’ve been such a strong proponent of dialing back our
large-scale asset purchases and will continue advocating that we do so.
It is my firm belief that the fault in our economy lies not in monetary policy but in a reckless and
feckless federal government that simply cannot get its fiscal and regulatory policy geared so as to
encourage business to take the copious amount of money we at the Fed have created and put it to
work creating jobs and growing our economy. Fiscal policy is not only “not an ally of U.S.
growth,” it is its enemy. If the fiscal and regulatory authorities that you elect and put into office
to craft taxes, spending and regulations do not focus their efforts on providing incentives for
businesses to expand job-creating capital investment rather than bicker with each other for
partisan purposes, our economy will continue to fall short and the middle-income worker will
continue being victimized, no matter how much money the Fed puts into the system.
I don’t want to ruin your lunch after such pleasant talk of longnecks and liquidity, but if you
wish to know who is at fault for hollowing out the welfare of middle-income workers and the
American economy, kindly do not look at me or my colleagues at the Fed. When you go home or
take a break during today’s conference, look at yourself in the mirror, for you elect our fiscal and
regulatory policymakers. Many of you give money to finance the campaigns of candidates from
out-of-state: Texas is a treasure trove of campaign finance for both Republicans and Democrats
running for national office. We at the Fed are providing more than enough monetary
accommodation. It is time for fiscal policymakers to do their job, to ally themselves with us to
achieve a fully employed, prosperous America.

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In addition to being proud Longhorns and prosperous Texans, be bold Americans. Only you, as
voters, have the power to insist that our lawmakers craft policies that are needed to restore
American prosperity. Please do so.

NOTES
1

See “Report: Texans Drink a Lot of Beer—34.4 Gallons per Person in 2012,” by Tiney Ricciardi, Dallas
Morning News, July 9, 2013.

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