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.


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101 years and counting's picture

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

MarketTruth's picture

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

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.

morkov's picture

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

tamboo's picture

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

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.

Tyler Durden's picture

West Palm Beach =/= Palm Beach

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...

Zerohedge fan's picture


two is :

buy silver

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


tmosley's picture

Awww, is someone sowwy he missed the twain?

Somehow this looks more like a bubble to me:

Butthurt much?

High Plains Drifter's picture

How much is it worth a oz, in 2011?  

Pez's picture

Around 34 pairs of dirty underpants.(DUP)

Infinite QE's picture

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

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...

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.

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...

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.

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. 

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?

Misean's picture

1. Max out your credit card.

2. Buy siliver, default on cc.

3. Profit

SheepDog-One's picture

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

I love underpants gnome economics.

ZackAttack's picture

I love underpants gnome economics.


It's a buns and gutter economy.

GOSPLAN HERO's picture

Buy silver and be happy.

agNau's picture

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

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.

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.

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.

SheepDog-One's picture

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

Zerohedge fan's picture



buy silver

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

H. Perowne's picture

1. Max out your credit card
2. Smoke hopium

Drag Racer's picture

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

Drag Racer's picture

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

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. 

f16hoser's picture

Credit Card Balance: 0


Feels good! Visa/MC = Suck

Note to self's picture

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

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.

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.

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.

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?

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.

johnQpublic's picture

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

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?

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.

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.

Occams Aftershave's picture

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

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.

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