Richard Fisher, of the Dallas Federal Reserve Bank, in an anecdote about a breeder bull on his family ranch, compared recent behavior of the U.S. economy to that of a raging bull in a pasture full of cows. Simmental bulls, he explained, with all of their musculature and leanness, are nearly impossible to tame when in the presence of attractive … ahem … prospects. “An extremely muscular economy and robust financial system like that of the United States is not all that dissimilar,” he said in a speech delivered Tuesday to the Texas Cattle Feeders Association. “Academics and armchair pundits may think them easy to manage. Yet, despite all the advances in economic theory and risk management techniques, when the economy and financial markets get too headstrong and frisky, they are hard to rein in.” Fisher attributed the down turn in the economy to the government’s failure to “take away the punch bowl” after the party got started, letting the raging bull of the economy consequentially get out of hand. “We must never allow this to happen again,” he said. “But first we must deal with the situation at hand.” And the situation is looking grim. Morning after for the ‘frisky bull’ economy Consumers are increasingly losing confidence, and banks seem to have lost the will to lend. Despite Federal Reserve efforts to encourage lending by lowering the federal funds target rate to 1 percent last week — which Fisher endorsed — commercial banks have been slow to make new capital available to consumers and businesses. This behavior shows what Fisher called “a debilitating pathology,” the recent trend of holding onto cash while the economic mess plays out. “You can’t grow an economy when financiers are curled up into a ball, clutching dollars for fear they might lose them,” he said. “With the credit markets frozen, growth gives way to recession, and confidence is displaced by fear.” Fisher said rising consumer price indexes and an upward-creeping “core” inflation index kept him hesitant to endorse rate cuts for a while. Rising prices, frozen credit and an “evaporation” of consumer confidence, however, tipped the scales in favor of Fed action over caution, he said, later acknowledging there’s only so much the Fed can do to counter the current credit phenomenon. “Remember that we have a limited role,” he said. “We are the central bank of the United States, not the fiscal authority. We have available a limited number of tools. But we have been deploying them aggressively.” Balance sheet to swell The Fed’s aggressive measures to tame the ‘frisky bull’ economy – and its effects on everyday Americans – resulted in a current $1.9 trillion in assets on the Fed’s books, up from the $960 billion that occupied the books at the beginning of 2008. Fisher also said 100 percent of the Fed’s holdings used to be in the form of Treasuries, which account for less than a third of the Fed’s holdings today. “I would not be surprised to see [the assets] aggregate to $3 trillion — roughly 20 percent of GDP — by the time we ring in the new year,” Fisher said. Fisher called the unprecedented combination of Fed’s measures “a necessary antidote to what ails the economy and a needed impetus for the restoration of confidence.” But the Fed can’t do it alone. “Complementary action must now be undertaken by the fiscal authorities—by the Congress in cooperation with a new president,” he said in his speech, which came hours before presidential polls closed Tuesday, showing overwhelming favor for the now-president-elect Barack Obama. “Despite the efforts of the Fed, the hope that comes with a new presidency, and what will hopefully be responsible and carefully calibrated fiscal initiatives for the Congress, I believe we have an epic challenge ahead of us,” Fisher said. Read Fisher’s speech. Write to Diana Golobay at [email protected].