John Silvia is chief economist with Wells Fargo, and a member of the Walker College Business Advisory Council. Monday he was the guest luncheon speaker during the Harlan Boyles CEO Lecture series. His speech focused on elements of strategic thinking, and preparing for your economic future. Afterward he took questions from the crowd.

You can listen to his speech online, or download as an mp3. (right click on the link, then select “Save as”. It’s 29MB)

One question Silvia focused on concerned the Federal Reserve and how it has supplied a lot of liquidity to the economic system. This was done, as Silvia explains, not in a way “a typical undergraduate student would have learned in a typical money and banking course.” It has directly intervened by purchasing treasuries, mortgage-backed securities and asset-backed securities. And it’s ready to begin pulling back.

The challenge we have in our society over the next six or nine months, and we may see it sooner: …

As the Fed withdrawals its support from the treasury market, the argument that you may in fact, after October start to see the treasure rates moving up. The Fed has also said that they’re going to diminish their role in the mortgage market by buying mortgage basked securities. They’re going to buy a lot less securities and eventually, by March, they’re going to be withdrawing that liquidity from the mortgage market as well as home equity loans and auto loans.

Well, immediately you can have a sense of what’s going to happen - that’s going to put upward pressure on interest rates and its going to diminish the amount of liquidity in the market place. Well, I don’t know. We have an unemployment rate in the United States at 9.8%. Is the Fed really going to start tightening credit in the market place with the umeployment rate at least nine and a half percent or so at best, in a mid-term election year. That’s going to be tough …

The Chinese have made a lot of commentary that they are very concerned with the amount of federal debt the U.S. has, budget deficits and monetary policy. We have a difficult situation. Unlike the world that I grew up in, we do truly have a global economy, with very interdependent capital markets. And that kind of environment suggests that whatever we do does have secondary implications, okay.

We can not – and again, with all due respect to the people who have public office positions here – often times I get very frustrated when I hear some politicians in Washington speaking as if, “we’ll do W, and they have to do Y.” We’re not in that game anymore. We have a global capital market here that, if we start doing X they will do Z. They’re going to react to that. And I think we have to be very carful about this.

I think the Fed and President Obama’s administration has to walk a very fine line here. How do you withdrawal liquidity, how do you impose fiscal disciple, yet somehow support economic growth without doing too much to create the recession but without offending essitantally a lot of foreign investors who are buying our securities? …

The next 6 to 9 months is going to be really fascinating in terms of looking at, how does the Fed do its exit strategy? How does the Obama administration do its exist strategy? And what are the implications for capitol markets?