Fed President Hoenig: Still Need To Address The Debt Issue
by ilene - September 6th, 2009 7:29 pm
Fed President Hoenig: Still Need To Address The Debt Issue
Courtesy of Tom Lindmark at But Then What
Throughout the recession one of the more outspoken members of the Fed has been Thomas Hoenig, the President of the Kansas City Fed. Refreshingly, he continues to speak his mind and not shy from the harder issues that most in government prefer not to address.
In a speech that was given to the Kansas Association of Bankers a month ago but just released today, he had this to say:
The U.S. economy appears to be reviving from a nasty recession, but too little has been done to resolve the underlying problem of too much debt, a Federal Reserve official says.
In a speech given a month ago, but released to the public on Saturday, Kansas City Fed President Thomas Hoenig said massive amounts of public and private debt are putting tremendous pressure on the Fed to keep interest rates low, potentially sowing the seeds of inflation or further economic imbalances.
Hoenig, considered one of the Fed’s leading advocates for low-inflation policies, said the Fed has tried too hard to boost growth in the past by keeping rates low. But low rates only encouraged more debt, and fueled an increase in the money supply that has eroded purchasing power.
Sustainable growth can’t be achieved that way, he said.
The federal government has taken on much more debt in an effort to stimulate the economy, he said. Consumer debt remains bloated. And the biggest banks are still overleveraged by about $5 trillion, he said.
The way out of the swamp will be tricky, he said.
“As we become more confident that we are at the bottom of the recession and are moving into recovery, we must become more resolute in systematically reducing our balance sheet and raising interest rates,” Hoenig told the annual meeting of the Kansas Bankers Association on Aug. 6.
Well, it remains to be seen if there is any resolve to move away from a debt fueled economy towards one that is more grounded in fundamentals. It all sounds good, however, there is no magic wand that can be waved over the economy to cause that to happen. The adjustments he calls for require years to put into place and it’s problematic at best as to whether the public has the patience and will to…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.