Expectations of deflation
Interview: Congressman---Shays, Chris---Politician / Govt Official
Interview: Martin Associates---Martin, Preston---Chairperson of the Board
>> today was the start of a two-day long fmoc meeting. and as wall street debates and speculate what is the feds next move should and will be, our next guest provides a unique perspective on what goes on inside those fmoc meetings. press tennessee martin is a former―preston martin is a former vice chairman of the federal ereserve. he joins us from our san francisco bureau. thanks for joining us.
>> great to be here.
>> you have been part of the fmoc with alan greenspan. what do you think went on today behind closed doors? what kind of conversations?
>> well, the first day is information day. half a dozen staff members reporting, starting with the international chief, reporting to those 12 bank presidents and seven governors and all of the staff people in that palatial room that f.d.r. had built for good locking purposes in the 1930’s. so this is information day. there’s not much real discussion. questions of staff. well, what do you mean the dollar is weakening and that’s good for the economy? but the second day is a discussion one.
>> can those discussions sometimes become heated?
>> yes, sir. i was known as the dissenter when i served.
>> now chairman greenspan has highlighted the potential for deflation. how do you feel that potential is right now?
>> it is a potential. i think you used the correct word, but it is not a probability. in that, notice that we are a services economy now. not a, you know, a car and --
>> manufacturing concerns are behind us.
>> well, our manufacturing concerns are in china. or india. or taiwan. you know ? we’re a services economy. and services are not getting cheaper. what was the increase that that gardener of yours charged you this year?
>> if i had one, i could tell you. my gardener is my wife.
>> up. up.
>> now that requires creating inflation here. do you expect the fed to change its communication strategy to try to influnes?
>> oh, yes. the fed attempts to affect just about every aspect of our society. not just our economy now. but our society. inner city housing and small business among other considerations. so the good news, out of the board of governors, and the good news out of the 12 federal reserve banks is such that they don’t need to use a half of 1% cut tomorrow. there’s not that need for that when you consider that the weaker dollar means higher sales of american-produced services and goods. if you understand that the housing market is so strong that yur question ought to be to our neighbor, have you re-fied yet?
>> so what do you think they’re going to do sna? what’s the cut they’re going to make?
>> they’re going to do a gesture 25 basis points. we’re going to help you guys. that’s all it is is theatrical. because look, they’re pumping the money supply, increasing the money supply, best measure in three. almost 6% a year, while the economy is growing at 1.5%. they’re working the overseas markets with the central banks.
>> do you think it’s been enough, though? do you think the cuts thus far have done the job that chairman greenspan intended? and if not, why should we expect tomorrow’s rate cut to do the job?
>> because the rate cuts never will do the job. the five or six major powers of the federal reserve system together do the job and together are already doing the job. yes, it’s a bumpy kind of recovery, but it’s a recovery.
>> before i let you go, you were instrumental in the formation of freddie mac, do you have reaction to the scandal facing management now?
>> owe, yes. my reaction is don’t overdo your very excellent reporting of freddie mac’s troubles. i recruited the party chairman when i formed freddie mac some years ago. and let me tell you that leeland didn’t cook the books. the only thing that’s happening here is some minor adjustments. yes, they ought to change the way it is regulated. but there’s not a book cooking.
>> preston martin, thank you very muff. chairman of martin associates, former vice chairman of the federal reserve and former chairman of the home loan chair. stay with us. much more coming up.
