This page has been archived and commenting is disabled.

Dennis Lockhart And The Atlanta Fed Gnomes: 1) Max Out Your Credit Card, 2) .......... 3) Profit

Tyler Durden's picture


Atlanta Fed's Lockhart is the first Fed talking head on the wires today advising the general public to, gasp, spend: "A less consumption-dependent economy will help rebalance the country's external accounts—the trade and current accounts. It's unlikely and even undesirable that there be a drastic shift away from consumption, so less American consumption will not fix the global imbalances.[sic]" In other words: 1) max out your credit card 2) .... 3) profit.

The Great Depression Rebalancing (link)

Dennis P. Lockhart
President and Chief Executive Officer
Federal Reserve Bank of Atlanta

The International Economic Forum of the Americas
Palm Beach Strategic Forum
West Palm Beach, Fla.
April 4, 2011

Key Points

  • In Lockhart's view, American economic history over the last quarter century can be divided into three periods: the Great Moderation, the Great Recession, and what he calls the Great Rebalancing, which is now underway. As the economy continues to recover from the recession, Lockhart sees three rebalancing processes now underway: rebalancing of consumption and savings, fiscal rebalancing, and regulatory rebalancing.
  • Lockhart believes that higher savings rates and more measured consumer spending will make the U.S. economy less dependent on consumption and will help rebalance the country's external accounts. He thinks fiscal rebalancing is mostly ahead of us and public pension reform is a necessary element of fiscal correction. Also, as regulatory rebalancing continues, Lockhart sees the need for striking the right balance in all regulated sectors.
  • Lockhart is confident that the Federal Reserve, through its monetary and regulatory policies, is helping to shape and support conditions that all these three rebalancing processes must have in order to proceed.

The conference organizers suggested a
number of questions we could address in our remarks. The gist of these
questions is 1) What has changed after the recession and the financial
crisis? and 2) What is new?

This is a pretty big canvas on which to paint for a mere 10 minutes.
My stock-in-trade is an economic outlook speech, but today I will
exploit the opportunity presented by these questions by stepping back
and trying to discern the broader historical themes of the "before and
after" of the recent recession and financial crisis. These themes are
likely to at least partially define the environment for business in
coming years.

I almost always begin formal remarks with a disclaimer. It goes like
this: my remarks today are my personal views and may not be shared by my
colleagues on the Federal Open Market Committee and in the Federal
Reserve System.

The Great Moderation
Here is the basic thrust of my argument today: over the last quarter
century, American economic history can be divided into three periods. A
long period leading up to the recession that began in 2007 has been
called the Great Moderation. The recession itself was the most severe
downturn we have experienced since the Great Depression. For that
reason, it has been called the Great Recession—not a depression, but
still very ugly. I would like to suggest that the period we are now
in—beyond being a recovery from recession—can be thought of as the Great
Rebalancing. This phrase has been used to describe the adjustment
process underway in Britain. I believe it's also appropriate to the
United States.

Historical periods are more easily labeled with hindsight and,
obviously, the story is not yet told. Take this discussion, therefore,
as a device to frame some of the big economic issues as we look ahead.

During the Great Moderation, from about 1984 to 2007, the volatility
of output growth and the level of inflation declined markedly. There
were two recessions during this period, but both were relatively shallow
and short-lived.

The Great Moderation was a period of sustained growth and low
unemployment. Lower and more stable inflation created the conditions for
the improved functioning of financial markets and made planning easier
for both businesses and households.

Economists have attributed the Great Moderation to a variety of
factors. These factors include better macroeconomic policy (including
monetary policy), various structural changes in the economy, and some
good fortune as well.

However, the seeming stability brought on by the Great Moderation
masked growing imbalances and excesses as time went on. The household
savings rate, for example, steadily declined. Consumers took on a lot of
debt, especially mortgage-related debt. Asset prices—notably house
prices—increased much faster than their historical average.

Rising domestic imbalances were growing in tandem with global
imbalances. These imbalances were manifested in large current account
deficits that began to build in the late 1990s. Surpluses abroad
resulted in outsized capital flows to the United States that lowered the
cost of borrowing, encouraged leveraging, and increased returns on many

Toward the end, investors began to assume that past hefty gains
guaranteed future results and took on more and more risk. But in 2007,
the Great Moderation came to an end.

The Great Recession
The Great Recession that followed was the deepest and most prolonged of
the 13 recessions since the Great Depression. The financial crisis
brought the country close to financial collapse. It caused more than 8
million job losses and brought a painful level of unemployment and
underemployment that persists today.

The Great Recession lasted seven quarters and turned to recovery in
the summer of 2009. Since then, the economy has expanded for seven
quarters, as of last Thursday (the end of the first quarter). With each
quarter, the recovery is increasingly well established.

However, underlying the recovery there remain serious imbalances that
have not been corrected. Work on correcting these has only recently
begun. This is a very familiar story to all of you, I know.

The Great Rebalancing
In my introduction, I mentioned what I called the Great Rebalancing.
Today, I see three rebalancing processes now underway. They are 1) the
rebalancing of consumption and savings, 2) fiscal rebalancing, and 3)
regulatory rebalancing in the financial sector.

Let me elaborate a bit more on the forces that I think will define this period of rebalancing.

First, the deleveraging of the household sector is rather well
advanced and continuing. Households are repairing their balance sheets
by reducing debt and rebuilding savings. The savings rate has hovered
around 6 percent for many months now, more than triple the level that
prevailed at the end of the Great Moderation. Consumer spending has been
growing more slowly relative to income than it did before the
recession. I expect that this more measured consumption behavior is
likely to persist.

A less consumption-dependent economy will help rebalance the
country's external accounts—the trade and current accounts. It's
unlikely and even undesirable that there be a drastic shift away from
consumption, so less American consumption will not fix the global
imbalances. But a stronger savings and investment economy here and its
mirror image—a less consumption-driven economy—should temper the
dangerous tensions that are characteristic of international imbalances.

Stronger savings by U.S. consumers won't be enough to correct our
external imbalance without significant reduction of the country's public

The public sector in the United States must stabilize its finances
and reverse the accumulation of debt that has accelerated in recent
years. This process of public sector deleveraging—an element of fiscal
rebalancing—is mostly ahead of us.

Spending cuts have begun at all government levels, and some
improvement in revenues is now being reported. The extent of cuts is
being discussed, quite literally, as we speak.

Public pension reform is a necessary element of fiscal correction.
Again, this is mostly ahead of us. In the private sector, the process of
migration from a defined-benefit world to a defined-contribution world
is well underway. And observed from a very high level, I think there is
evidence of a broad shift of some of the burden for providing for one's
retirement from a combination of government and employer to the
individual. The context is, of course, the baby boomer retirement wave
that is just beginning, with those born in 1946 now reaching 65 years of

The third major domain of rebalancing, in my view, is bank and
financial system regulation. We are in a period of re-regulation. In
many ways, this re-regulation is a natural reaction to the financial
crisis and constitutes a commitment to the public to prevent a

Some of this re-regulation is wholly new—especially in the financial
sector. As required by the Dodd-Frank Act, a new dimension of financial
oversight is in the early stages of implementation. This oversight is
variously called "macroprudential supervision" or "systemic risk
oversight." The intent is to identify and preemptively neutralize
sources of systemic risk and eliminate the too-big-to-fail problem.

In banking and a number of other industries, many contacts across the
Southeast region of the country are increasingly giving voice to claims
that this re-regulation is overreaching and potentially destructive. I
frequently hear—across a range of industries—that the growing cost of
compliance will drive out investment and hiring. As a current banking
supervisor who has a background in the private sector, I see both sides
of this concern. Let me just say that, to maximize the economy's
potential, I believe that in the coming years we need to strike the
right balance in all regulated sectors.

I see rebalancing of certain fundamentals that underpin the country's
economic performance and prospects as a prerequisite of long-term
growth and full employment. I'm confident that the Fed, through its
monetary and regulatory policies, is helping to shape and support
conditions that allow these rebalancing processes to proceed.

Our hosts here today asked, what has changed? What is new? I would
like to think some profound changes are underway that, once the
perspective of hindsight has been achieved, might appropriately be
dubbed the Great Rebalancing.



- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 04/04/2011 - 09:20 | 1131957 101 years and c...
101 years and counting's picture

1) max out your credit card 2) DONT PAY YOUR CREDIT CARD BILL 3) profit

Mon, 04/04/2011 - 10:19 | 1132200 MarketTruth
MarketTruth's picture

Max out cards due to buying physical gold and silver, then default via BK = profit.

Mon, 04/04/2011 - 10:40 | 1132281 Thomas
Thomas's picture

"A less consumption-dependent economy will help rebalance the country's external accounts"

I believe he is saying throughout this essay that we have to spend less, but I could be wrong.

Mon, 04/04/2011 - 12:14 | 1132798 morkov
morkov's picture

"we have to spend less" but we need to pretend spending LOL

Mon, 04/04/2011 - 11:14 | 1132428 tamboo
tamboo's picture

also goad any bill collectors into breaking the law to generate even more funds for silver purchases.
rinse and repeat.

Mon, 04/04/2011 - 11:38 | 1132583 covert
covert's picture

not likely to work.


Mon, 04/04/2011 - 09:22 | 1131970 digitlman
digitlman's picture

He's giving the speech from Palm Beach....fucking oasis of ungodly "wealth" in what is an otherwise poor part of FL.

Mon, 04/04/2011 - 09:24 | 1131981 Tyler Durden
Tyler Durden's picture

West Palm Beach =/= Palm Beach

Mon, 04/04/2011 - 09:49 | 1132075 TruthInSunshine
TruthInSunshine's picture

West Palm Beach resembles a third world country today.

As do much of the rest of formerly solidly middle class American parts of the nation...

Mon, 04/04/2011 - 09:56 | 1132114 High Plains Drifter
High Plains Drifter's picture

zoe pound? 

Mon, 04/04/2011 - 09:24 | 1131980 Zerohedge fan
Zerohedge fan's picture


two is :

buy silver

Mon, 04/04/2011 - 09:41 | 1132038 Spalding_Smailes
Spalding_Smailes's picture


Buy silver ?

From 1920 - 1970 it was under $5.00, in 1991 it was under $5.00, in 2001 it was under $5.00, in 2005 it was at $7.50. ( We already had debt issues priced in in 2005, Social Security • Medicare obligations, massive debts, the Bush wars, the credit markets already started showing said issues in 2002 ) .....


Silver -

1920 - $1.37

1947 - $0.60

1963 - $1.29

1968 - $2.56

1971 - $1.27

1974 - $6.70

January 21,1980 - $48.00

March 28, 1980 - $11.10

1982 - $4.88

1985 - $6.50

1989 - $6.00

1991 - $4.60

1995 - $6.10

2001 - $4.50

2005 - $7.50

2007 - $12.00


Mon, 04/04/2011 - 09:47 | 1132067 tmosley
tmosley's picture

Awww, is someone sowwy he missed the twain?

Somehow this looks more like a bubble to me:

Butthurt much?

Mon, 04/04/2011 - 09:59 | 1132120 High Plains Drifter
High Plains Drifter's picture

How much is it worth a oz, in 2011?  

Mon, 04/04/2011 - 10:04 | 1132144 Pez
Pez's picture

Around 34 pairs of dirty underpants.(DUP)

Mon, 04/04/2011 - 10:01 | 1132138 Infinite QE
Infinite QE's picture

Bought silver in 2000, probably sell it in 2013-2014. 

Mon, 04/04/2011 - 10:05 | 1132148 disabledvet
disabledvet's picture

"there r a couple of billion tons of copper in Argentina just on the surface."  And of course "where there is copper...

Mon, 04/04/2011 - 10:08 | 1132163 tmosley
tmosley's picture

There is a reason they called it Argentin(ium)a.

But was a long time ago.  Handwaving does not suffice to talk down the price of silver any longer.  If there were millions of tons of silver sitting on the plains of Argentina waiting to be picked up, SOMEONE would have done it already.

Mon, 04/04/2011 - 10:35 | 1132257 tickhound
tickhound's picture

Book it boy!  My pompous prognosticator of contrarion indications!

Buy BAC?  Gold not so much, he said... bottom falls out of $1355 ("look out below"), BAC @$14 with rocketship potential, said he.


1985 - $5.20

1986 - $6.10

1989  $13.94

1993 -$13.87

1995 - $11.46

1998 - $43.00

2000 - $20.00

2003 - $38.00

2006 - $54.00

2008 - $30.00

2009 - $3.00

We already had debt issues priced in in 2005, Social Security • Medicare obligations, massive debts, the Bush wars, the credit markets already started showing said issues in 2002

Once again, you're "analysis" is brilliant by comparison and your impartiality shines.  :)

Happy days! 

Now get back in line like a good little bitch... Because you do what they tell ya...

Mon, 04/04/2011 - 10:50 | 1132323 Spalding_Smailes
Spalding_Smailes's picture

Just make sure you kiss my feet after this bubble burst' , 80 years worth of silver under $8.00 !!!! I call that a long term trend • support


Hows GLUU, MPEL, and ZEUS up 30% after my calls in 2-3 months .... Not many pro's calling those stocks.

Mon, 04/04/2011 - 11:03 | 1132390 tickhound
tickhound's picture

Last 10 years from $5 to $38.50... I call that a long term "uptrend". 

Observing BAC over the same period... I'm unsure how to label that wet noodle.

And as far as this "bubble burst"... If silver starts to smell, you can count on all your "calls" hitting the shitter... right along with your "fundamental" market.

Difference is I own these metals, AND this "shit market".  You have personal disdain for the metals, and don't believe this is a "shit market"

Never let your emotions get in the way of a good trade.  You're no different than those shorting the S&P for the last 2 years.  Personal disdain against a liquidity / debt trade.  Book it. 

Mon, 04/04/2011 - 10:36 | 1132261 lieutenantjohnchard
lieutenantjohnchard's picture

and the dow recovered from the 29 crash in 1954. so what's your point? do you live in the past or the present?

Mon, 04/04/2011 - 09:27 | 1131987 Misean
Misean's picture

1. Max out your credit card.

2. Buy siliver, default on cc.

3. Profit

Mon, 04/04/2011 - 09:30 | 1132004 SheepDog-One
SheepDog-One's picture

AH yes that was the problem all along, the peasants just werent SPENDING enough! Duh!

I love underpants gnome economics.

Mon, 04/04/2011 - 10:05 | 1132155 ZackAttack
ZackAttack's picture

I love underpants gnome economics.


It's a buns and gutter economy.

Mon, 04/04/2011 - 09:28 | 1132006 GOSPLAN HERO
GOSPLAN HERO's picture

Buy silver and be happy.

Mon, 04/04/2011 - 09:31 | 1132010 agNau
agNau's picture

*correction* To be more specific.......Max out on Silver purchases.

Mon, 04/04/2011 - 09:31 | 1132011 Dr. Impossible
Dr. Impossible's picture

Matt & Treys' simplistic model for Gnomish economic engineering, seems to have atleast a currency with a intrinsically valued base currency in trade.   dirty underpants by weigt/recycle value have a higher value then most printed linen I've seen. I'd pay my taxes in dirty underpants any day!

hell, i guess nobody said it had to make cents.

Mon, 04/04/2011 - 09:58 | 1132039 Pez
Pez's picture

One of my favorite episodes. How art imitates life. It works though! If you consider your profit as dirty underpants or USD.

Mon, 04/04/2011 - 09:32 | 1132016 Hondo
Hondo's picture

The guy is a typical FED fool.........he make no logical nor "rational" sense......It shows he doesn't really understand the current economy...what drives it and its fault lines...........he should be removed from office immediately before he causes more harm.

Mon, 04/04/2011 - 09:46 | 1132064 SheepDog-One
SheepDog-One's picture

What drives the economy? Promises of more fiat printing. The fault lines in it? None apparently exist.

Mon, 04/04/2011 - 09:32 | 1132019 Zerohedge fan
Zerohedge fan's picture



buy silver

But You have to do it slowly or they find out:

Mon, 04/04/2011 - 09:34 | 1132023 H. Perowne
H. Perowne's picture

1. Max out your credit card
2. Smoke hopium

Mon, 04/04/2011 - 09:40 | 1132041 Drag Racer
Drag Racer's picture

he can go fuck himself cause the public is tired of being the recipient

Mon, 04/04/2011 - 09:55 | 1132116 Drag Racer
Drag Racer's picture

looks like the Irish are getting it again by the next crew of bastards in charge

Mon, 04/04/2011 - 09:40 | 1132048 A Man without Q...
A Man without Qualities's picture

Nothing will happen until these fools are willing to admit, even if only in private, that the economy started to contract at the end of 1999/ 2000, when the false miracle of the later Clinton years began to wear off as the accounting tricks and dotcom mania faded, held at bay by ultra-low rates and the rampant credit expansion of the housing bubble.

They are obsessed with aggregate monetary (i.e. credit) growth, but are blind to the extend of the malinvestment and bubble chasing that generates these extreme booms and busts.  The assets do not generate the returns to justify the investment, so it is only through new buyers coming in that a profit can be made - classic Ponzi economics.

The Fed is saying - borrow, spend and be merry, for tomorrow we die. 

Mon, 04/04/2011 - 09:41 | 1132056 f16hoser
f16hoser's picture

Credit Card Balance: 0


Feels good! Visa/MC = Suck

Mon, 04/04/2011 - 09:43 | 1132059 Note to self
Note to self's picture

Most folks are going to be maxing out their Credit Cards on gas and food.

Mon, 04/04/2011 - 09:42 | 1132061 RobotTrader
RobotTrader's picture

Don't laugh, but if we go into Weimar Mode, then anyone who maxes out the credit card to buy stuff will probably end up being able to beat inflation better than the savers who have no debt.

Mon, 04/04/2011 - 09:49 | 1132078 tmosley
tmosley's picture

Unless the savers bought silver or gold.  You wouldn't know about that, since you can only post charts of those two metals on down days, which are pretty rare these days.

Mon, 04/04/2011 - 09:52 | 1132104 SheepDog-One
SheepDog-One's picture

Yea if the 'savers' are just saving fiat currency or stocks and havent been buying real items of value, theyre screwed.

Mon, 04/04/2011 - 09:47 | 1132065 Nathan Smith
Nathan Smith's picture

In a few weeks I am attending one of these events in which Lockhart will be speaking.  I was told there would be a Q&A. 

What should my question be?

Mon, 04/04/2011 - 09:53 | 1132099 Doubleguns
Doubleguns's picture

Ask what was the first clue, they recognized, we were entering a banking crisis. I am curious. Hopefully it was not Lehmans failure.

Mon, 04/04/2011 - 10:12 | 1132171 johnQpublic
johnQpublic's picture

ask him if he'd like a bite of your i-pad

Mon, 04/04/2011 - 10:14 | 1132177 ZackAttack
ZackAttack's picture

Ask him

- How are US central bank policies different from Japan's of 10 years ago, and what empirical evidence suggests that the outcome will be any different?

- What empirical research supports the Fed's massive, costly social engineering experiment to influence inflation expectations?  

- Does he have any good iPad recipes?

Mon, 04/04/2011 - 09:46 | 1132069 Doubleguns
Doubleguns's picture

1. max out credit card buying silver. 2. Screw the banks 3. profit.

We can't fix the global imbalance, just Americas. When will the FED figure this out.

Mon, 04/04/2011 - 09:52 | 1132093 Note to self
Note to self's picture

Why are we not seeing the helicopter cash drops we were promised?  Funnelling the monetization through the banks is a sneaky switcheroo.  Actually dropping bundels of bills would surely help us get spending moving in the trenches, as he advocates.

Mon, 04/04/2011 - 10:15 | 1132188 Occams Aftershave
Occams Aftershave's picture

yes!  if certain banks can borrow all they want at 0%, the citizens should have that right too.

Mon, 04/04/2011 - 10:29 | 1132234 Rogerwilco
Rogerwilco's picture

Of course Congress and the banks would never, ever alter the contract terms on consumer debt mid-stream. No sir, they're straight shooters and treat everyone, even the little people, fair and square. And our ever-vigilant justice system will uphold consumer rights against malfeasance or fraud by large institutions, we can count on that as sure as the sunrise every morning.

Together we thrive.

Mon, 04/04/2011 - 10:36 | 1132263 dcb
dcb's picture

Where the f'ck does the fed come up with these people, and how stupid are economists as a whole. Does this a- hole realize the only people with money anymore are the very rich. No he advises to go out and spend in the setting of decreasing wages, inflation, household debt, and a dropping dollar. this is the way to fiscal health. No wonder this country is so screwed. don't get back on your feet, get more into debt, transfwer more of your money to the bankers.

I'd be arrested if I said what I'd like to see happen to these people

Mon, 04/04/2011 - 10:35 | 1132265 Urban Redneck
Urban Redneck's picture

Imports, consumption, spending, saving, reform... I guess he has given up on production, exports, and jobs.  Between US fiscal and monetary policy the only jobs are in financial services, the ony product produced is paper, and our only exports are debt, inflation, and financial meltdowns.  With a government like this who needs enemies? 

Mon, 04/04/2011 - 11:01 | 1132383 Gimp
Gimp's picture

120,000 empty house in Palm Beach County, 124,000 empty houses in Broward county just south of Palm Beach. No jobs that pay above $8-9 per hour. Highest Real Estate taxes and Homeowners Insurance in the country. Gas and food prices going through the roof. Where exactly are the working stiffs supposed to come up with extra disposable income to buy more crap???   Just a question for the "economists"...

Mon, 04/04/2011 - 11:29 | 1132520 SilverFiend
SilverFiend's picture

As usual,  take what these assholes say and do the exact opposite.  I for one am constantly looking for ways to not participate in the system.

Sun, 04/10/2011 - 00:54 | 1154463 thames222
thames222's picture

Decreased consumption will be the trend for years to come--this is the truth, and the Fed is tripping out trying to find out ways to deal with it.  lots of young people aren't going to be using credit cards and falling into the same traps; the economy is changing drastically before our eyes.

Do NOT follow this link or you will be banned from the site!