To those worried about the value of the dollar and the struggles of Americans living on a fixed income, Dallas Fed President Richard Fisher has a message: "We will not do further damage from the standpoint of tolerating further inflationary pressures," he says. "The really damaging thing we could do is further erode [Americans'] income by tolerating or being party to inflationary forces."
As was the case in 2008, the dollar has lately benefited from a "flight to safety" trade, particularly at the expense of the euro, which was recently hovering near a six-month low.
"Right now we're seeing a flight to quality -- a rush back to dollars" and Treasuries, he says. "I take a little bit of comfort that the world still views us as number one [but] I don't take enough comfort in that. I'm not happy being the nicest horse in the glue factory."
Noting gold has been "richly priced" in a number of currencies, Fisher says "we need to be the best in absolute terms, not just in relative terms."
One reason Fisher has vocal opposed the Fed's recent policy actions, including QE2 and last month's decision to keep rates at extraordinarily low levels until mid-2013, is a fear the central bank will lose credibility, undermining the dollar's reserve status.
"You reach a point where what you're doing is what economists call 'moral hazard', which is you're doing the work the fiscal authorities should do," he says. "I do not believe we will continue down that path and we cannot afford to do so…we know what happens when central banks throw in the towel and monetize debt and that is what happened in the Weimar Republic, Nationalist China, Argentina and other cases. I don't know a single person on the Open Market Committee…who isn't trying to prevent that from happening."
True to form, Fisher doesn't shy away from addressing the widespread critique that the central bank has been part of the problem by keeping rates for so low for so long, rather than providing solutions to our economic ailments. "That is a valid point," he says.
Check the accompanying video for more and don't miss the earlier segments from this exclusive interview: