THE ASPEN INSTITUTE

CAN THE FEDERAL RESERVE STIMULATE THE ECONOMY?

Doerr-Hosier, McNulty Room

1000 N, Third Street

Aspen, Colorado, 81612

Thursday, June 28, 2012

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LIST OF PARTICIPANTS

MARIA BARTIROMO

Television Journalist, CNBC

RICHARD W. FISHER

President and CEO, Federal Reserve Bank, Dallas

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P R O C E E D I N G S

MR. BERG: I'm Gilchrist Berg, and I'm lucky to

be here today because I successfully renegotiated my

prenuptial agreement. I'm fortunate to be marrying the

head of operations of the Aspen Institute, at least I was

before I came up here, Amy Margerum. And then I realized

she had the opportunity to introduce who you'd have to

have been in a cage somewhere not to realize who she was

and she in the last 20 years is known to most people

anywhere on the globe having interviewed almost every

important person on the planet. I jumped at the

opportunity.

Maria Bartiromo has the most successfully wise

news program in the United States winning two Emmys for

fantastic coverage. And I can tell you, priding myself in

believing I know something about business, I continue to

be surprised by the depth and quality of her questions and

we're very, very lucky to have her today here talking with

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Richard Skinner (sic), president of Dallas Fed, only

slightly less attractive than Amy -- than Maria.

Richard, while it's noteworthy what he's done as

a member of the open market committee of the Fed, has

really unbeknownst to most people, has withstood all the

pressure against quantitative easing, and today I had the

opportunity to talk with him a little bit beforehand.

Today we have this contest between austerity and easing,

both here and around the world and the role that a voice

like Richard plays in the world today is far, far more

important than you think.

And while this room is not filled with people

and we could fill it very quickly if we were talking about

melting glaciers, it's only slightly less important

because I can assure you that in terms of what's going to

happen in this country and the economies around the world,

we're going to have to resolve whether governments are in

fact bigger than markets, whether you can create wealth by

printing dollars, and I'm happy to present to you today

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Richard Skinner (sic) and Maria Bartiromo.

(Applause)

MR. BERG: I forgot to mention the topic. It's

whether the Fed can stimulate the economy.

MS. BARTIROMO: Thank you very much, everyone.

I just want to say this is Richard Fisher, president of

the Dallas Federal Reserve. Richard, it's great to see

you.

MR. FISHER: Thank you, Maria.

MS. BARTIROMO: Yeah, I'm -- it's always hard

when you've got lots of people coming at you all the time

asking for your opinions and we know how busy you are,

it's really great to sit down with you right now. It's

such an uncertain and important time for the economy.

MR. FISHER: Well, I appreciate being here and I

look forward to our conversation.

MS. BARTIROMO: Great. So I guess let's kick it

off with your assessments of where we are because there

are so many moving parts and it seems like the markets are

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moving on every headline coming across. So let me kick it

off there. How would you characterize this recovery right

now?

MR. FISHER: Very slow and painfully slow. In

fact, I'm going to put up a chart here if we can that will

show you where we are in terms of the gap. If we keep

growing at the current rate of employment growth -- and

that's what we care about, putting people back to work --

inflation is under control for the time being. We're

running inflationary rates around 2 percent, a little bit

less, which is our goal at the Central Bank, the Federal

Reserve, but this chart, Maria, shows you that if we

expand at the present rate of expansion, it's about a

139,000 or 138,000 jobs a month. It will take us till May

of 2015 to get back to our previous peak employment

levels. This is not satisfactory. The issue is, as

referred to by our introducer, Mr. Skinner here, how can

we change the pace, and what is the role of monetary

policy and what are the agents that are responsible to

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help accelerate this pace because we went through a huge

gap down during the financial crisis 2008-2009.

MS. BARTIROMO: I want to get into this because

many of you may or may not know, Richard's background is a

business background.

MR. FISHER: That's correct.

MS. BARTIROMO: And I think because you have a

business background you really approach monetary policy

and approach economic issues differently than some of your

colleagues. So I do want to get into that and certainly

about your views on monetary policy, but let me first

follow up on this chart. Why have we seen one of the

slowest recoveries in recent decades? I mean everyone you

speak to will say that we should be at a much farther

along point in terms of this recovery than we are. What's

the problem?

MR. FISHER: It's one of the great puzzles,

because we have poured on monetary accommodation. We've --

let's use a simple analogy. We have filled the gas tank.

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There is plenty of liquidity out there. We have $1.5

trillion that are on deposit from private banks in the 12

Federal Reserve banks. That's where private banks put

their money, their excess reserves. We pay them 25/100ths

of 1 percent per annum, as you know, not very much.

And the S&P-500 companies, we figure there are

about $2 trillion of excess cash flow sitting on the

sidelines not being put to work in terms of hiring more

people and committing to more capital expansion. And then

in the non-depository financial institutions, we have $600

billion to $800 billion; no one really knows what the

numbers are. A lot of money, a lot of cash, sitting on

the sidelines. Why isn't it being put to work? We've

made it possible.

We've put it there through monetary

accommodation. Why aren't businesswomen and businessmen,

public and private, large and small, going out and

expanding their operations? Well, you referred to my

background. I don't have a Ph.D. in economics. I'm very

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proud of the fact I don't have a Ph.D. in economics. I

have an MBA and I ran money for a living and I worked for

a bank, imagine out a banker at the Federal Reserve,

pretty odd.

You do best when you limit the uncertainty you

operate under. All businesswomen and men operate under

conditions of uncertainty. But when you have maximum

uncertainty, you go into -- I'll use a Clintonism here --

a defensive crouch. And if you don't know what your cost

structure is going to be and you have reasonable doubt

about the growth of your top line, sales, revenues, and

where demand is going, you freeze. I don't care how much

money you have sitting on the sideline. And I believe

that's what's happening now. We don't have clarity. We

haven't had it for some time in terms of what incents

businesses to take the gasoline that we have filled the

tank with and step on the accelerator -- John Maynard

Keynes called it the magneto -- to engage with the

transmission of job creation.

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Something's wrong. We were knocked down

severely. We know after severe financial crisis, it takes

a long time to recover, but the pace of recovery, as shown

in those charts, is way too slow. So let's say the Maria

company. You know that you can borrow money for almost

nothing now. It's fairly readily available. Why aren't

you borrowing it? It's hard for me to understand as a

businessman why you would when you don't know what your

tax rate's going to be next year, when you have no idea

how federal spending is going to affect either your

customer base or you if you're dependent upon a portion of

it indirectly or directly.

If you have no idea what it's going to cost you

to insure the healthcare of your worker, we got a little

more clarity on that today, but we know that this will be

a battleground issue for presidential campaign. In the

meantime you keep hearing and worrying about what's going

on in Europe where we export 13 percent of the exports of

this country.

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There's slowdown in China, which has become a

market that we have become much more integrated with, a

consequent knock-on slowdown in Latin America and

Australia and elsewhere. We are big exporters to Latin

America, particularly to Brazil now, and New Mexico. So

amidst all that uncertainty, people are just sitting on

the sidelines. And then you have one other thing that has

occurred simultaneously, which is we're riding up Morris

curve. That is productivity has been enhanced enormously

by technology.

So this is going to be a snail's pace. Now

there are parts of the country that have outperformed

others -- I come from one of them -- in terms of job

creation, but as a nation, we're way behind. And we have

run an accommodative monetary policy -- I believe that if

you depend too much on monetary policy, it gives excuse to

the -- and I'm going to use a harsh word here -- the

misfeasance of Congress. We've had generations of

Republicans and Democrats just dug a deep hole for our

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children. Spend, spend, spend; don't think about how

you're going to fund; unfunded liabilities. If we make up

for that as monetary authorities, that's the road to

Weimar, that's the road to Argentina, that's the road to

nationalist China. And we don't want to be responsible --

I certainly don't want to be responsible for that.

MS. BARTIROMO: You've said a lot of things

there. We're talking about a strong corporate sector.

Some estimates call in for cash on balance sheets of $3.6

trillion right now within the S&P 500.

MR. FISHER: Right.

MS. BARTIROMO: And they're not spending that

money in term -- aggressively, adding new heads to the

payroll because they're uncertain about tax policy. I

want to delve deeper into that. And I also want to talk

about your views about monetary policy, but let me get

your take first on health care. Today, we get the Supreme

Court upholding the President's health care legislation.

What kind of impact or implications do you envision as a

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result of this?

MR. FISHER: Too early to tell. Again, I think

this will be an issue that will be debated through the --

remember this starts in 2014. So the coordinator --

MS. BARTIROMO: But does the tax start right

away?

MR. FISHER: No, the whole program begins in

2014. And again, I'm not an advocate for either side. I

stay away from politics completely. I'm just critical of

the class in its entirety. So I'm totally nonpartisan.

You check your partisanship at the door when you come to

the Fed, and that's one of my proudest aspects of our

institution.

But there are a lot of unknowns. For example,

the meta -- the Medicaid portion is a huge dollar expense.

Some states will run Medicaid and -- up to certain levels

of poverty -- the ruling is actually a 130 percent of the

poverty level. In Texas, it's 27 percent, in California,

it's 103 percent. If people come up to the maximal level,

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they're not required to, and this was a key part of the

ruling. The Supreme Court ruled that a state has a right

not to, but if they did, it would cost the American

taxpayer another $480 billion between 2014 and 2019.

That will be interesting to see how that plays

out and what kind of fiscal pressures it puts on not only

states, but additional pressures on the federal

government. But Maria, to be honest with you, this is

new. We need to think through this thing and I work for

the monetary for the United States, not for the fiscal

authority.

MS. BARTIROMO: So let's start with monetary

authority. You dissected twice, I guess, in the last

couple of years, in terms of some of these stimulus

packages --

MR. FISHER: More than that.

MS. BARTIROMO: More than that for sure. But

just in most recent couple of programs, Operation Twist,

QE2, now we've got, you know, expectations or calls for

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QE3. Why are you so against the Federal Reserve being

there and bailing out this economy?

MR. FISHER: I'm not against Federal Reserve

bailing out the economy. The question is efficacy, what

works and what doesn't work. I mentioned earlier we have

a lot sitting on the sidelines. Question, why would you

add to that if it's already sitting on the sidelines?

Operation Twist, for those of you that aren't familiar

with the terminology is moving out the so-called yield

curve that is we have a big portfolio at the Treasury,

excuse me, at the Fed.

It's -- our balance sheet is almost $3 trillion

now, $2.7 trillion. It was &800 billion when we started

the crisis. We have been buying longer-term securities.

Typically we hold very short-term securities and we've

been moving the so-called yield curve. By the time we're

done with the program that the committee just agreed upon -

- which I argued against but I was in a minority. It's

the nature of deliberative bodies, the majority ruled for

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it and that's the way it works and the way it should work -

- we will end up having 30 percent, a third, of all

Treasuries between the maturity years of 6 and 30.

We will end up having no maturities between 3

months and 3 years. One of the benefits of owning

Treasury bills and notes is that they role off. In this

case, we're going to have to make a very tough decision at

some point to get out of those. And if the economy picks

up as we hope, we'll get out of them at higher interest

rates meaning they'll be marked down in price.

And I'm not sure what the consequence of that

are likely to be, which is why I argued against it.

Moreover, we have so much money coming in the country now

because of the European situation and elsewhere. It's an

ugly analogy, but I'd like to use it which is we're the

best looking horse in the glue factory. And because of

our relative performance, a lot of foreign investment is

taking place in treasuries. I think that's had a greater

impact than what we've been doing at the Fed in keeping

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rates low.

And the real concern I have is the exit

strategy. We can build out this big portfolio, but what

happens when we need to get out of it, and what will be

the inflationary consequences of doing so? Those are big

question marks. We have theoretical answers. No central

bank in the history of the world has ever done this on

this order of magnitude. And coming back to my background

as a business guy, I have to automatically think about

execution, not just theory, and that's why I've been a

little pigheaded on this issue.

MS. BARTIROMO: But you know, backtrack a couple

of years when we were sort of in the throes of the

financial crisis. Do you not believe that the Federal

Reserve was really needed in a big way?

MR. FISHER: Sure.

MS. BARTIROMO: I mean, you've got -- you had

companies like GE worried that the lights wouldn't go back

on back in 2007-2008. Was it appropriate then?

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MR. FISHER: We put in place what are called

exigent programs under a law that is no longer, Section

13(3) of the -- Dodd-Frank took that away. But what

happened then was different and I did support those

programs. We had a total failure in interbank lending.

The commercial paper market, the most basic instrument of

finance, came to a halt. Asset backed securities marking

stopped. And then we had a money market mutual fund; the

first fund in the United States as you know, broke the

buck.

We are the lender of last resort, all central

banks are. We had to create these programs to step in,

recreate those markets, get them going again -- revive the

patient and when the patient was ready to get off to say I

want to walk, which it was, we got out of that business.

And again, this is very unusual in government. We not

only did what we said we were going to do, very rare in

government, but we made money for the taxpayer. And then

we closed them down, extremely rare in government. We

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started something and closed it down.

So those were special programs. I think it's

noteworthy that under Dodd-Frank, the new legislation, we

will no longer be allowed to do that unless we do it on a

very broad scale, which raises the bar rather than dealing

with these specific micro components of each one of those

marketplaces.

MS. BARTIROMO: I think you make a great point

by saying, you know, $3.6 trillion of cash on balance

sheets; when you've got all this sidelined money, why are

we adding more to it?

MR. FISHER: Right.

MS. BARTIROMO: Get these companies to move that

sidelined money, put it into the economy. So what do you

think will be the best way to get that money moving again?

Talk to us -- and I recognize that you are focused on

monetary policy, not on fiscal policy.

MR. FISHER: Right.

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MS. BARTIROMO: But from your standpoint, if not

monetary policy, then what? What is it going to take

whether it's tax policy, energy policy, I don't know, to

actually get managers of businesses to add heads to the

payroll and get that money moving again?

MR. FISHER: I'm going to ask my assistant to

put up a slide which shows by Federal -- well, let's go

back to 1990. And we're going to skip forward on a bunch

of these things. I hope you'll forgive me for being

parochial, but I think there's a lesson here. This shows

total nonagricultural employment over 22 years. Now why

do we say non-ag employment? This is a standard way of

measuring employment. Agriculture represents 1 percent of

the U.S. economy. We're big, but it's 1 percent, and 1

percent of our workforce. And typically, because it's

seasonal, that's taken out.

This is 22 years of growth, employment growth --

and of course, I wouldn't show you this chart unless Texas

were at the top -- but look at the difference between

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Texas and New York. Over 22 years, New York and

Massachusetts have a total job growth -- this isn't

compounded annually -- total 4 percent. And look where we

are, we're at 54 percent. We have compounded -- if you

see the black line, the U.S., at twice the rate of the

United States.

So we're growing our workforce at 2 percent, the

United States -- a little over 2 percent, United States at

less than 1.5. Why? I would argue that at the margin

under both Democrats and Republicans in the Governor's

Mansion, under Ann Richards for example, and under

Governor Bush, and legislatures that are Democrats and

Republicans, we have just made ourselves more business-

friendly. We have a tax regime that of course, has no

income tax. We have a regulatory environment that some

people may object to, but it is more business and job-

friendly, and people have been attracted and I could show

you charts that show the correlation between investment

that flows into Texas and our job growth.

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That tells me -- let me add one other thing. We

have the same monetary policy as the rest of the United

States. Same interest rates are paid on mortgages, same

on C&I loans, commercial industrial loans. Consumers pay

the same rate to borrow. Why are we outperforming the

rest of the country?

It tells me that at the margin, what we do on

fiscal policy has an impact. But that's at the state, and

incidentally, we have a legislature that meets for 140

days every 2 years. Now, there's some people who wish it

was 2 days every 140 years but I don't think we get there.

Fiscal policy of the United States is a dominant

influence, even bigger than state policy. And I'm

convinced, since we all have the same monetary policy,

Texas, California, Illinois, New York, Massachusetts that

if we had a differentiation here of more pro-business, pro-

growth, fiscal policy on the spend and tax side, then we

would probably have much greater economic growth. And I

think this underscores the point.

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MS. BARTIROMO: More business-friendly approach

is what's happening in Texas. How can we look at that

approach and emulate that on a national level? What kind

of policies might actually move the needle in terms of

making that --

MR. FISHER: Well, again, that's where I want to

be careful because I think it's important for our elected

officials to make that decision. They had the power of

the purse and I'm talking about the Congress; people

forget this. Presidents come and go, but Congress is

there repeatedly. And it is the Ways and Means and other

committees that control the purse.

Under Democrats and Republicans, what they have

done is they have created over time an enormously

difficult environment, obviously in terms of our growing

our economy and also recovering from the huge setback we

experienced. So I'd like to see them -- whatever they

think is appropriate. It requires short-term confidence,

but also requires long-term reinforcement of the fact that

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we're not going to go the way of the European countries,

particularly Greece, Spain, Italy. We're not going to get

stuck in the Japanese trap.

Maria, I look at all this excess cash sitting

around the world, it's not only here in the United States,

we have it everywhere. And I say I want it all for my

people. I want it for America. I want it for American

workers. And we now have to live in a different world

than we lived before. We live in a globalized world. We

won. We won the Cold War. The Wall came down. The

bamboo curtain is peeled back. We don't kill the

Vietnamese anymore like when I was young, we were sent to

war.

We now sell their products. Every American

baseball cap or actually golf cap made -- the little

American flag on the side, almost every one of them is

made in Vietnam. Imagine that. We trade with each other;

we buy each others securities, et cetera. So we now have

competition for capital and competition for job creation.

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This is not a bad thing. It's a good thing. This is what

we wanted. But now we have to create a tax, spend fiscal

regulatory regime in the context of outcompeting others.

And therein lies the problem.

MS. BARTIROMO: Do you expect that to happen?

MR. FISHER: I'm an American. I'm the son of

immigrants. I'm a believer in this country. Of course, I

expect it to happen, but I don't think it's going to

happen easily. But I can tell you one thing that would

make it worse is if we just run the printing presses at

the Federal Reserve. My strong opinion is that that would

be another disabling or confusing factor for businesswomen

and men and it would frighten them.

And I think we have to be very careful. We are

pushing the limits in my opinion, and I don't want to add

that as another factor of uncertainty and very importantly

Maria, if you're an elected official, it's much easier to

say, oh, just go print the money than make the tough

decisions of how we're going to cover our bills, what's

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the right tax regime, where do we cut spending. Look at

this farm bill discussion that just took place, very

difficult stuff. If you feel the Fed or the Central bank

is just going to print your way out of it, let them do it.

MS. BARTIROMO: Well, if you keep printing money

though, aren't you basically giving legislators, giving

Congress, the White House, sort of a way out, an easy way

out, not to make the hard choices?

MR. FISHER: Yes, yeah. I believe that.

MS. BARTIROMO: Yeah. You mentioned Europe, and

I know you've spoken about Europe. You gave a speech on

Europe recently. I want to ask you about Europe, because

the ECB is in a similar position, printing money.

MR. FISHER: Right. European Central Bank.

MS. BARTIROMO: The European Central Bank. So

what are your thoughts on how that plays out and how

worried should we all be about the European problems

impacting the U.S.? You said moments ago, 13 percent of

exports.

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MR. FISHER: It's a market for us. It's not an

unimportant market. Obviously, it's 13 percent of what we

sell. You have to sort of go through the entrails of

those numbers, because a good portion of that goes to

Germany and the bigger countries rather than the so-called

peripheral countries. Although 3 percent goes to

Rotterdam, and you're not sure how it's distributed. I

mean, it would take a lot of work to figure that out. So

it's a market for us.

Secondly, we worry about the psychological

contagion. I think our banks and our money market funds

and so on have reduced their exposure significantly. One

of the reasons they had their exposure is because we have

a zero interest rate policy at the Central Bank, the

Federal Reserve. It's very common for people to reach for

yield and they put a lot of money in France and elsewhere

to increase the yield on cash. That's now been pulled

back significantly by the money market funds.

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So there is that risk of psychological contagion

and the real issue is a European issue; how they're going

to get out of the trap they've set for themselves. They

don't have a united fiscal policy like we do. Well, let

me be less general. We have a problem with one Congress.

They have to deal with 17 in the euro currency zone, and

27 in Europe.

MS. BARTIROMO: Do they deal --

MR. FISHER: So the European Central Bank, which

is a new institution doesn't -- we have been in business a

100 years. We're the third central bank in the history of

the United States. We have some experience now in dealing

with this. This is all new to them, and I think Mr.

Draghi and his predecessors are really severely

challenged, but they're doing a very good job. And there

are limits again given the nature of the fact that the

Germans have a dominant role, have a natural phobia for

inflation; that's in their DNA, as to how far they're

willing to go. John Maynard Keynes said that it's much

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quicker -- much easier for markets to get rational than

for sovereign powers to get rational. And I think it's

going to take some time. That's going to be a very slow

heal as well.

MS. BARTIROMO: The numbers are really

devastating.

MR. FISHER: Have a nice day. It's -- also --

MS. BARTIROMO: We can show your chart of the

numbers in Europe, in terms of unemployment.

MR. FISHER: Can you just put that up?

MS. BARTIROMO: I mean, you've got Spain at 24

percent, right?

MR. FISHER: Right.

MS. BARTIROMO: really Greece

MR. FISHER: Look at -- you can see Greece, the

euro area. The thing that worries me a lot if you look at

-- it's hard to see, there's just so many things on here.

But the Pacific census division, which is California and

the Pacific coast states basically have the same

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unemployment rate as Italy, and that's where we're weakest

in the United States.

MS. BARTIROMO: California.

MR. FISHER: Well, California is the big daddy

or the big momma of that group. But it's up and down the

coast, and that's where we're very, very weak. It's our

highest pocket of unemployment.

MS. BARTIROMO: So would the approach we're

talking about, business-friendly, ensuring that businesses

participate in the economy, spend money, would that also

relate to what we're seeing here in terms of getting their

arms around these very, very severe unemployment rates.

MR. FISHER: Well, again, we have challenges.

We have new participants in the global economy. It's not

just -- when I was assistant to President Carter, we had a

G6. And what really counted was, what does the U.S. do,

what does Japan do, what does Germany do -- with all due

respect to our Canadian friends and the Italians and so

on. Now we have significant players in China and India

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and Brazil and Australia and others.

So again, I think the whole world is going

through a process of needing to modernize and reboot

fiscal policy as we develop new institutions like the

European Central Bank. But we have a new world to compete

in and also we have this incredible force that's come from

cyberspace, and the reallocation of the specialization.

These are big issues, and I think all governments are

dealing with it; the Eurozone as well as the United

States, and these emerging countries as well.

MS. BARTIROMO: But in terms of the debate,

austerity versus stimulus, this is the debate that they

are living with every day. And in an environment where

you've got 24 percent of the country of Spain --

MR. FISHER: Imagine.

MS. BARTIROMO: -- out of a job and unable to

get a job, do they need stimulus or should they stop

spending, austerity or growth?

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MR. FISHER: Tough issues for their lawmakers,

for their fiscal policy makers. You have to bring

unemployment down in the short term, but reassure the

markets in the long term. Remember James Carville's great

line that if he could come back as the most powerful

person, it wouldn't be the Pope or the President. It

would be as a bond market.

And you know, the trouble with Spain now, of

course, it's very difficult to fund their debt. Their

short-term rates are extremely high. Greece's are

extremely high. Markets are bloodless and brutal, and you

have to, of course, meet up to market expectations if you

expect to finance yourself in the public market place.

Therefore, you have to have long-term promise, but you

also have to correct your short-term promise. I, you

know, have great sympathy for these lawmakers and what

they're trying to do, but the answer is not simply to use

the monetary tool. We are necessary, but not sufficient

and that applies to us in my opinion very strongly. It

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also applies to the European situation or any other

country.

MS. BARTIROMO: Do you think that your

colleagues will follow this advice? I mean so far every

time there's a Fed meeting and Mr. Bernanke, who I know

you have the highest regard for --

MR. FISHER: I do.

MS. BARTIROMO: -- you know, speaks about this

economy, we continue to see speculation that there will be

more stimulus. So you have this view -- you've been

voicing this view, but do you think this view will

materialize or will we still see a printing of money?

MR. FISHER: Well, first of all, I'm not alone.

There are others; they can speak for themselves. I only

speak for myself. You may have noticed that Mr. Lacker

dissented in his last formal vote. There are other

members of the committee who argue, sometimes as I do and

sometimes from a different approach, with the same bottom

line. And look, nobody on that committee, hawk or dove,

3434

ever wants to cross over the line. We know.

And the chairman has been quite outspoken about

this. No amount of monetary accommodation, he said, can

substitute for what's needed from our fiscal authorities.

And we have to be mindful of those limits. So we can't go

on forever like this. It would be imprudent for us to do

so. We need to see some tough decisions made by the

Congress of the United States.

MS. BARTIROMO: We know that, you know, Europe

is where it is and I know that you've spoken a lot about

China as well. When I get into your speech that you made

recently about China, because you're saying that global --

that's slow down -- and China has been the engine of

growth for the world, and I'm going to get to that. But

let me just ask you this. What are you and your

colleagues worried about so much? I mean, not you,

because you are saying, you keep pushing back on all this

stimulus. But why not just say - we've done enough. Now,

its' up to you, now it's up to the fiscal side of things.

3535

What are they so worried about?

MR. FISHER: Well, it's our tradition that we

don't speak for each other. I only speak for myself. You

just stated my argument. I think we've done enough. In

fact, I would argue we've done too much, but that's not --

that's a fine point. The real tough decision making --

and I then I think we should drop this subject -- has to

come from the people that we elect to tax our money and to

redistribute it, and to do so in a way that incents

people. Whether you are a liberal or a conservative is

not the issue; how do you incent people to put our people

back to work?

And we know that we have the liquidity out

there; we created it at the central bank. And businesses

have saved and saved and saved. So again, ask yourself

everything you do; how might I incent someone to go out

and hire an American without resorting to protectionism --

and these things we know are so dangerous -- and get your

act together and get it done, grow up.

3636

MS. BARTIROMO: China has been obviously a focus

of attention for sometime right now. It has even created

a debate about whether America is losing its mojo, and

other countries are growing much faster. How severe has

the slowdown in China been in your view and what are the

implications of that giant engine slowing down?

MR. FISHER: Just a little background here; I've

been going to China since 1979. I was part of President

Carter's team that negotiated the settlement with Deng

Xiaoping. And I remember in a meeting we had with Deng

Xiaoping his saying that they would grow at 8 percent per

annum. Now if you know the old Chinese system, that's

remarkable, because the abacus is a function of 7. So, we

couldn't figure out how he came to 8 percent compounded.

He just pulled the number I guess out of the air. They

have done that or slightly better.

They're now at a point -- I don't know if it's a

complete stall point, but what an economist would call the

middle income trap. They've moved up the value added

3737

ladder. They supplanted the lower value added part of the

economy, massive amounts of women and men put to work,

picking up the common labor and those kind of -- and now

they're moving up the value added ladder, the question is

the transition and then what incents their people to make

that transition. You moved a lot of people from the

interior to the coastal areas. They exported like crazy,

cheap products at first and then better products and

better products. But right now it seems that they are

slowing down, and the real issue is going to be how do

they make that transition to the higher value added area,

and how do you do it with a form of government that they

have.

I've been to China so many times that I cannot

remember, and I think you know that I was made in China.

My parents left Shanghai just at the last moment I was

born, a couple of months later after that. So I've always

had an interest in China. I follow it very closely.

There is a certain level of official corruption and

3838

inefficiency. The accounting numbers are very

undependable.

My druthers tell me that they are probably

growing at less than they state. But the real issue now

is how do they go -- having gone from a period of Deng

Xiaoping onward, basically from 1978 onward, 1980 onward

to now, and make the next leap without liberalizing their

society and making it possible for not just the

princelings and those that are favored by state owned

enterprises and so on, but for the people to participate

in that economic miracle.

They have done a great deal. I'm very impressed

with what they've done. But I think this next step will

be the most difficult of all.

MS. BARTIROMO: Well, moving from, what, an

export led economy to a consumer led economy obviously

can't be easy and it's a long-term process. Where are

they, do you think, in that process?

3939

MR. FISHER: They're just beginning. They have

still, as we do, by the way, several too big to fail

institutions, state owned banks that need to become much

more efficient and much more commercially and

instinctively driven, and they have a real estate bubble

that they need to slowly deflate. They seem to be going

about that. And then the question, too, is can you have a

consumer society when you have such restrictions on social

behavior.

I don't know the answers to these questions, but

I think that's the challenge the Chinese people face.

MS. BARTIROMO: Is this one of the worries that

we should be focused on in the United States that China is

slowing faster and more than we really know or expect it?

MR. FISHER: Well, I mean we're worried about

the margin -- again, to go back to my part of the Federal

Reserve district, which is 96 percent Texas, parts of

Louisiana and parts of New Mexico. We're the biggest

exporting state; we pulled ahead of California 7 years ago

4040

and the Panama Canal will make us even more prominent in

the Gulf area. And our fastest growing market has been

exports to China; a lot of electronics, a lot of high-

tech, of course agriculture products and so on. And

chemicals, huge, because we have 60 percent of the

refinery business of the United States in my Federal

Reserve district.

So we want them to be growing as a market. As

you know, they own a pretty good pool of U.S. treasuries.

Not an important -- they have helped us keep interest

rates down. They've been aggressive buyers; they continue

to be buyers. So it is important we think, I think, for

the world and our own economy that they continue to grow

and that they get through this little soft patch they're

going through. They are still growing at better rates

than we are, obviously, but they have a lot of mouths to

feed.

I remember when we were with Deng Xiaoping, we

asked him, "How many people are in China?" And he said at

4141

that time 900 billion. And an aide leaned over and

whispered, he said, "I'm sorry, I was wrong, 1.1 billion."

So, 900 million and 1.1 billion, just a little rounding

error.

MS. BARTIROMO: Yeah.

MR. FISHER: It's amazing.

MS. BARTIROMO: I know.

MR. FISHER: So we hope that they will make this

transition, have a healthier economy. It's good for the

world. That's what we want to see.

MS. BARTIROMO: I remember in Hank Paulson's

book when he wrote about how China and Russia had a

conversation, the leaders of China and Russia during the

financial crisis to try to bully America and -- into doing

what they wanted to do, otherwise they would start selling

some of those holding aggressively. Do you worry that

they could bully us into, you know, forcing interest rates

up or forcing America to do something given that they do

own so much of our securities?

4242

MR. FISHER: No, I think they'll invest

according to prudent investment measures. I wouldn't want

to be the head of the Bank of China if I took a loss on my

portfolio or if I missed something. So -- and again,

we're the most attractive place for sovereign credit risk.

And you know, I just don't hear any more that the Euro

system is so much -- this was a fad, an intellectual fad

we went through for about a decade, actually starting with

Mr. Kennedy's book, the scholar of Yale, that Europe was

going to take over from the United States. We don't hear

that anymore.

MS. BARTIROMO: No, we certainly don't hear

these days --

MR. FISHER: And you don't see it in the

marketplace either.

MS. BARTIROMO: Right.

MR. FISHER: So I think they will invest

according to prudent standards and I don't worry about

that. In fact, I take comfort in the fact that they buy

4343

our treasuries. It's a good thing. It shows how

integrated the global markets are, and I believe they will

follow market discipline just as Singapore will or the

Swiss will or the Canadians or the Mexicans or anybody

else will. That's what we do these days.

MS. BARTIROMO: Switzerland and Singapore are

among the most competitive countries out there, small

countries, but competitive.

MR. FISHER: Uh-huh.

MS. BARTIROMO: Do you think that's because of

the business friendly approach there as well?

MR. FISHER: There was a piece the other day in

a newspaper; Singapore has more millionaires per capita

than any place else. When you think about it, it was a

swamp when Lee Kuan Yew -- and people have some dispute

about the way he managed, but when he became the leader of

Singapore -- it wasn't very long ago. It was in our

lifetimes. So -- but these are small entities but very

strategically smart. The Norwegians, that's probably the

4444

richest society in the world. But that's due to one

product, energy. But also prudent management.

And I think there are examples -- I can't really

take too much comfort in these smaller countries. We are

unique in America. We are huge. We lead the world. We

just have to figure out a way to continue to do this, and

it's hard to take examples from these smaller countries.

However, we do know that capital is attracted to them and

we have to remind ourselves if we are going to create a

tax regime, it has to compete with people like that. And

there are plenty of them around the world, and I think

there will be more so particularly as the Europeans try to

figure their way out of their current trap.

MS. BARTIROMO: Let me switch gears, ask you a

little about regulation. Today, of course, we wake up to

a story that -- and speculation that the trading loss at

J.P. Morgan could be as high as $9 billion. So we are all

trying to figure out really what is the value of this loss?

Is it $2 billion, $5 billion, $9 billion? What's your

4545

take on that?

MR. FISHER: Well, I'm going to ask my

colleagues to put up a little chart here in terms of --

you're talking particularly about the large institutions.

But let's first -- stop right there, go back, go back.

You asked me about regulation first, so let me show you

this little pie chart from the Harvard Business School.

This was a study done by Roger Porter, a very

good, brilliant economist and one of his colleagues, and

what it does is it surveys living HBS graduates who are

all in pretty good positions and the CEOs of companies as

to what inhibits them from further job creation. It's one

of the better studies done.

And look at those two big pieces in the pie,

regulations and taxes. And then what is very worrisome to

me is that middle section on talent. I don't see a

monetary policy up there that could be part of

macroeconomics, but over half of the inhibition to hiring

new people are regulation, talent and taxes. It tells you

4646

a lot. These are people that operate businesses that hire

men and women that advance our society through the private

sector. So that is -- it goes to regulation, which you

ask. Now with regard to, you just mentioned J.P. Morgan --

that has to do with what I consider to be one of our

biggest problems, which are institutions that are

considered too big to fail.

And we have done a lot of work at the Dallas Fed

on this. I would urge you to go to our website, by the

way, because we take a rather radical view. Our view

which has bred a lot of analysis and just an unfortunate

conclusion, in that we think the least worst option is to

break up these large institutions.

We put this out with our annual report in March.

We have since got an awful lot of play. Just on -- two

days ago, Mr. Purcell, who ran Morgan Stanley had an

incredible article in the Wall Street Journal and walked

through a market solution that shareholders should be

demanding greater value from these very large

4747

institutions. You happened to mention one of them but

without picking on them by name, these are inhibitors, by

the way, of the efficiency of monetary policy. If we're

so worried about whether someone is going to fail or not

management becomes worried and they are also going to do a

defensive crouch.

So we have a cultural change that I think needs

to take place. We have five or six institutions that

dominate well over half of the deposit base in this

country. It's worse after Dodd-Frank than it was before

Dodd-Frank, and I do think without going into that

specific transaction -- I want to show one more slide of

someone who I respect enormously who just passed away,

Anna Schwartz. And she basically says and had said, and

this was quoted in her obituary written in the Wall Street

Journal, that bottom line, basically that people that make

bad decisions should go out of business and they should

pay the consequences, be punished and those who make good

decisions should be enriched.

4848

We have it backwards. And I do believe all this

exercise about too good to fail that came out of Dodd-

Frank won't do the trick, and in fact it enshrines too big

to fail institutions, and my bank takes a totally

different view.

MS. BARTIROMO: Why is it worse now after Dodd-

Frank, in terms of too big to fail?

MR. FISHER: Well, part of it is because we did

have a crisis and we allowed certain institutions to be

blended into others. You know what they are. And also,

there's an implied subsidy. If you're too big to fail you

as a depositor will feel or as a shareholder or really as

someone -- you will feel more comfortable. They have a

funding preference. And if you look at the cost of funds

of these large institutions compared to a local bank here

in Aspen or a regional bank in Dallas, they are much lower.

So it's an unfair subsidy. And if you have a

subsidy, you're going to do a little bit better than the

competition. So I think we need to deal with this thing,

4949

and I would add is one more note. One of the reason Japan

in my opinion, another country I spent a great deal of

time in, was -- could not come out of the crisis that they

came out despite abundant liquidity provided by the

central bank and interference of many more markets than

we've been involved in at the Fed is because they never

cured the problem at their too big to fail banks. They

still remain inefficient. And I think that sort of

clogged up the monetary transmission mechanism. So this

is an issue I think we really have to deal with.

MS. BARTIROMO: You know, putting one -- I'm

going to open it up to questions in a moment there, so I

hope you will ask Richard your questions and give us your

insight. But putting sort of one specific name aside,

J.P. Morgan with the trading loss there, the derivates

portfolios out there, how worried should we be that there

are all these unknowns in some of these derivates

portfolios and that it could go anyway at any bank?

5050

MR. FISHER: Well, what I worry about is

protecting the depositors and not spending taxpayer money

to bail people out who get in trouble. We have a system

where we provide for insurance for people that want to

safe keep their money. Where do you safe keep your money?

In banks. And really what Sandy Weill figured out, which

was extremely smart, not that he's a bad guy, he

understood the system, was that you could take that cheap

subsidized money and take risk. And one of the things --

Maria, this may be difficult for our -- and sometimes hard

for me to understand, but I look at this as my former

professional life. I managed money; I was a banker.

When you are banker you are much more balance

sheet oriented. When you are an investment banker or a

hedge fund manager like I was, you are income statement

oriented. You really care about what you make every year

and you ramp up your institution to do that. There's a

clash of cultures and these cultures are utterly

completely intertwined in these large institutions. I

5151

think the best thing to do is to separate those cultures.

And I'm not alone. Even Phil Purcell, who ran Morgan

Stanley and Anna Schwartz and others who are much more

reputable than me have basically concluded the same thing.

I'm not saying we go back to the law that inhibited the

two cultures -- not inhibited, but separated the two

cultures. But I think we're going to have to have

something like Glass–Steagall again.

MS. BARTIROMO: Glass–Steagall meaning you've

got to separate these businesses?

MR. FISHER: A Glass–Steagall 2.0.

MS. BARTIROMO: Yeah. So in other words, the

top banks in the U.S., J.P. Morgan, Bank of America, Citi

they are too big to fail?

MR. FISHER: They are considered too big to

fail, yes. And they're not alone.

MS. BARTIROMO: Questions from the audience?

Yes, sir?

SPEAKER: Has any --

5252

MS. BARTIROMO: There's a microphone right

behind you.

SPEAKER: Has any serious thought been given to

monetizing the debt at a time when inflation is very low

and the national debt seems at least very difficult to

resolve? Is that something that your people have studied?

MR. FISHER: It's something we want to avoid,

that's the road to perdition. If you monetize the debt

you are on the road to hyperinflation. We have seen this -

- we know this historically over and over and over again.

So if you mean we should just continually print money ad

infinitum nobody thinks that way that I'm aware of in my

committee, and I certainly don't think that way and I

would object to it. You should never monetize the debt.

SPEAKER: It's more about getting the debt down

to a more manageable level. And again, if you were ever

going to do it, it would be at a time when inflation is

low and our industries are operating below capacity; there

would be the possibility at least of being able to do it.

5353

And my thought, really, is more: it may be the only answer.

MR. FISHER: Well, if it's the only answer we've

gotten ourselves into a hole we'll never get out. Again,

the only way to deal with our indebtedness and our

unfunded liabilities -- and I want to give you an example

of an unfunded liability, Medicare. We at the Dallas Fed

calculate that the present value, that is if we paid off

everything that's been promised to the American people

under Medicare today, $90 trillion. That's what your

legislators have done to you.

Should we print that money or should we have

them corrected? To me every time you see a central bank

in history who has gone down the path of monetizing

obligations to that extent, you have ended up with

hyperinflation. This is the history of the world. So I

don't believe in monetizing the debt. Already we at the

Fed own a big portion of treasuries. I mentioned earlier

we're up to -- will be up at the end of this program,

almost a third of the longer term maturities of treasuries

5454

will be in our portfolio.

Markets need these instruments because they are

the safest instruments to trade in, and it then interferes

with the proper functioning of markets and the arbitrage

that goes off of those safe investments such as U.S.

treasuries. So there's a practical limit as well as an

ideological limit. I was just giving my own ideology, but

I think there's a practical limit as well.

MS. BARTIROMO: Are you expecting -- a question

right here. Are you expecting an agreement on the fiscal

cliff by the election? What does your gut tell you?

MR. FISHER: My gut tells me that there's going

to be a lot of angst and argument between now and the

Election Day, and again, politicians will use this to

their advantage on both sides of the aisle. I just don't

see any resolution here for quite some time.

MS. BARTIROMO: That's very dangerous, isn't it?

MR. FISHER: But you asked -- that's my personal

opinion.

5555

MS. BARTIROMO: Right, of course, that's your

personal opinion.

MR. FISHER: That's not the Federal Reserve.

It's not the Dallas Fed speaking.

MS. BARTIROMO: We understand.

MR. FISHER: Yeah.

MS. BARTIROMO: We understand. Yes, sir?

SPEAKER: (Off-mic). I have a question of

motivation regarding the lack of investment --

MR. FISHER: But it's a good question so far.

George, you can take the slide off.

SPEAKER: -- regarding the lack of investment by

corporations. It appears to be a systemic problem because

slowdown, yes, and uncertainty, yes, but corporations have

been dealing for a long time with coping with difficult

situations and uncertainty. This is what management is

paid for.

MR. FISHER: You are exactly right.

5656

SPEAKER: But on the other hand, what we -- I

think what we can see is a tremendous focus on short-term

results, a lack of long-term perspective. Because if you -

- if corporations will take a hit short-term in terms of

profitability, they could make investments long-term. And

I think the big danger of the current situation, which

hasn't been really discussed but I would be interested in

your perspective, the big danger is that innovation may

suffer badly because if the investment is not happening

where will the innovation come from on a broad basis?

So I believe it's a real systemic problem, where

it needs a very comprehensive perspective including the

markets, how the markets react, the pressure on

corporations for short-term results, the fiscal policy, et

cetera, et cetera.

MS. BARTIROMO: It sounds like the U.S., by the

way --

MR. FISHER: I was going to say --

5757

MS. BARTIROMO: -- taking a hit on monetary

policy in the short-term.

MR. FISHER: Yeah, it sounds like the federal

government of the United States, short-term gratification

and not thinking about long-term consequences. I disagree

with you in terms of the way businesses operate.

SPEAKER: You disagree?

MR. FISHER: Absolutely. I do think that --

I've been on compensation committees of different publicly

traded companies and I do think we may have distorted

decision making, and you may be right in terms of

correcting that cultural bias. But any good business

woman or business man thinks long-term. I don't want to

embarrass anybody in this audience but there is someone in

this audience who has built one of the great auto dealer

franchises in America. I know this family like brothers

and sisters. They are always thinking very long-term,

even though they make a good deal of money short-term.

And I don't see how you can succeed as a business person

5858

unless you are plotting over a multiyear framework.

Now the way the trading markets work and the way

a lot of what Maria comments on every single day and is so

good at, you know, we tend to think that -- you know, we

are just -- every business person it seems they're just

worrying about the price of their stock every 30 seconds

or nanoseconds. I don't know many business operators that

operate that way, either here or anywhere else. There are

some --

SPEAKER: Quarterly focus.

MR. FISHER: And quarterly focus, you're right,

is awfully myopic. But you know what? You can work to

that mark but if you don't perform over the long-term,

you're not going to keep your job. But I'm a public

servant. What I'm really worried about is the cultural

you just expressed; the proclivities you just expressed

are rampant with our fiscal authorities. Short-term

gratification, digging long-term holes, and I'd like to

see that corrected. And there's no way to correct it

5959

through monetary policy.

We too have to think long-term. And this is one

of the things I think is great about the Federal Reserve

and a good central bank; we have to think about the long-

term consequences of what we do and when we sit around

that table every discussion we have is the long-term

consequences of what we're doing. What will be our exit

strategy? How will we get out of this 10 years, 5 years

and down the road or at the right time when it occurs?

I wish that our elected officials had thought

that way. I begin -- I believe they are beginning to

think that way, and now they have to make the tough

decisions to implement that new thought process.

MS. BARTIROMO: So what are some low hanging

fruit solutions as it relates --

MR. FISHER: You keep trying to get me in fiscal

policy --

6060

MS. BARTIROMO: No, no, no, I'm not trying to

get you to comment on what, you know, this administration

or another administration should be doing.

MR. FISHER: Right.

MS. BARTIROMO: Just trying to get some

sensible, practical ideas on the table as it relates to

social security, Medicare and Medicaid where we are

spending so much money on these programs?

MR. FISHER: You do better when you collect more

taxes and you collect more taxes when people prosper.

When business prospers, they pay more taxes. We know --

and this is just one area that's come to mind, and again,

I have no fiscal responsibility. I'm not elected by the

American people. I don't represent anybody. I'm a

central banker and I do my best in my profession.

But -- and I'm not elected by the American

people. But were I elected by the American people, one

thing I would be thinking about is, again, how do I get a

lot of that money that's outside the United States to come

6161

back and employ Americans. Well, that's one area under

tax law --

MS. BARTIROMO: That's tax policy.

MR. FISHER: -- where you can make significant

changes. The specifics of how you do that is up to our

fiscal authorities. But I would like to see all this

liquidity worldwide come here.

MS. BARTIROMO: And you would like to see the

discussion happen?

MR. FISHER: Absolutely.

MS. BARTIROMO: Yeah.

MR. FISHER: And I haven't heard that. The one

thing I don't hear about when we talk about correcting our

deficits is funding our unfunded liabilities, which are

enormous that aren't even on our balance sheets is doing

it in a globalized world. We are no longer an island. We

have to compete against others for capital, for job

creation and I think our leaders have to think in those

terms. It's a new world and we can't just do this in

6262

separation.

MS. BARTIROMO: A question there, all the way at

the window.

MR. FISHER: This fellow right here.

MS. BARTIROMO: Oh, I'm sorry. Yes, go ahead.

SPEAKER: You may have touched upon a little bit

what I was going to ask, but when you sit around the table

and you think about all these things as austerity and

stimulus, what do you think about ways to balance the

budget and how do you feel about it, because on the hand

when are stimulating you're creating more -- putting more

money into the marketplace, which may or may not help

balance the budget? It may create more debt more

spending. So what do you think around the table about

balancing the budget? Does the governors have any

thoughts at all?

MR. FISHER: Well, first of all, it's not our

job to balance budget. We're the monetary --

6363

MS. BARTIROMO: It's not just me who is bringing

up this stuff. Thank you very much.

MR. FISHER: But I will tell you that we do have

discussions of what the likely impact of government

spending patterns will be on the economy. The old basic

simple formula that you learned if you took high school

economics was our output was equal to government plus

investment plus compensation plus or minus net exports,

the sort of a four variable equation.

The 'G' is government, and that's a big part of it.

So of course we have to do our own best guesstimation. We

have a staff briefing. We have our own staff to brief us

in terms of where we think government spending and policy

will go and how it's going to impact economic growth so

that we can manage to that economic growth. But in terms

of making decisions about or discussing how we would

correct the problem, again that's not our purview. That's

what we elect Congress people and senators to do.

MS. BARTIROMO: Yes, sir?

6464

SPEAKER: So two questions. Do you have a view

that you could share as to how we should reform the

housing finance industry in this country? And then

secondly, how do you feel about the fact that we have

three banking regulators and how effective a model that is

to regulate the banks in this country?

MR. FISHER: Well, let me address the second one

because the first one, again, gets into the issue of the

people that make the laws that govern those institutions,

and that's not my job. I think it's healthy to have

freedom of choice if you are a bank, that is if you are a

community bank you can be a member of the Federal Reserve

system or you can be FIDC overseen as long as the

regulators work in parallel with each other, which we do

or we try to do. So I'm not as worried about that as long

as we move all in the same direction.

And there is a very conscious effort to do that

now. Those that are the senior policymakers on the

regulatory side spend enormous amount of time together.

6565

We at the bank level where we have the troops that go out

to supervise and regulate banks, we have over 600

institutions we supervise and regulate in my Federal

Reserve district under my bank, at the Federal Reserve

Bank at Dallas. We are in constant contact with the other

regulators as well to see what we might do that would

encourage a bit more effective transmission of monetary

policy.

So I don't have a problem with having a couple

of regulators. Dodd-Frank did do one good thing, which is

it sort of tightened that circle a little bit. It put the

thrift holding companies under supervision of the Federal

Reserve and it gave us some broader powers, originally it

did not intend to do so. It intended to diminish our

powers.

And if I can give you a little plug here, it was

thanks to a Texas senator, Kay Bailey Hutchison that that

whole process was reversed and indeed the Federal Reserve

ended up with greater supervisory powers over a broader

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purview of financial institutions. I think that's a good

thing.

MS. BARTIROMO: The Fed has said that rates are

going to stay at very low levels until 2014. I know you

said to me today rates will start moving when the economy

starts improving. But realistically speaking, would you --

MR. FISHER: That's good alliteration.

MS. BARTIROMO: I'm sorry?

MR. FISHER: That's good alliteration, but go

ahead.

MS. BARTIROMO: Thank you. Thank you very much.

When would you expect rates to actually move? I mean,

what's your gut -- I mean, '14 --

MR. FISHER: I never get into the business of

forecasting interest rates. I was against the 2014 date

for the following reason. Just putting a date out there

isn't the issue. That's what we call time contingent.

What I'm worried about is state contingent planning,

meaning what is the state of the economy, what are the

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dynamics, what's happening here. And by just picking a

date -- it wasn't done, by the way, thoughtlessly, it was

done with great deliberation. But it seemed to me that as

you approach that date, you might want to expand upon it

or contract it and that would create a whole new impulse

in the marketplace. And it just seemed to me to be not

the way to make monetary policy.

The way to make monetary policy is to make it

based on the state of the economy and the dynamics in the

economy, not just to pick a date. It was done to signal

when it was done that we would be in the low interest rate

environment for a long time, and I expect us to be in the

low interest environment for a long time.

MS. BARTIROMO: Let me wrap up -- one more

question here.

SPEAKER: I was going to -- what is the downside

-- so forget that there is a date, what is the downside to

a prolonged period of low rates? Are we encouraging

citizens to take inappropriate risk? And where do you see

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the next bubble because this is an extreme at zero percent?

MR. FISHER: That's a very good question. There

are costs and benefits to everything you do. One of the

costs of a low interest rate regime is that those that

played by the rules, those that saved, people that are

getting older like me that shorten the risk and came in on

the yield curve and just had their money in CDs and so on,

which is what you are trained to do if you are a prudent

saver, have taken it in the neck because they can't earn

anything on their retirement savings. Theoretically, what

you do when you come down to zero interest rates, what's

called the zero bound, is you encourage people to take

more risk.

A lot of people, however, are afraid of taking

greater risk because they've seen what happens in security

markets and it does run counter to the logic of what you

should do as you age or as you should be constricting your

risk. So that was one of the cost. We are well aware of

it. I articulated that quite forcefully. We have to deal

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with pension fund exposure as well. You know, a lot of

pension funds, particularly the state and local ones, the

government ones run on return assumptions that are sort of

no longer attainable. They're going to up-up, you know,

is put more money into the system. How do you that

without depressing the economy even further at the state

and local level?

Corporations have to do that, those that have

remaining defined benefits plans. So there are several

costs that were involved that came from this very low

interest rate policy. And then there is the issue of

whether you are encouraging speculation or not. I'm going

to make one other point which may upset some people in the

room. But I worry -- one of the things I worry about is

we might be party to making the rich richer and we're not

helping, as I put it, the Homers and the Marges. We're

helping the Mr. Burnses by low interest rate policy, and I

worry about that. That's a note that we ought to conclude

on.

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MS. BARTIROMO: Okay. Thank you very much,

Richard Fisher. Thank you everyone.

(Applause)

MR. FISHER: Thank you.

* * * * *

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