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Fed Vigilante Tom Hoenig Blasts ZIRP, Warns Market "To Cease Its Reliance On Fed Risk Management"
From Thomas Hoenig's speech "What About Zero?" Key selections which are not news for anyone here but which the buy on low volume market algos can certainly learn a thing or two from:
"There is no question that low interest rates stimulate the interest-sensitive sectors of the economy and can, if held there too long, distort the allocation of resources in the economy. Artificially low interest rates tend to promote consumer spending over saving and, over time, systematically affect investment decisions and the relative cost and allocation of capital within the economy... We now find ourselves with a Federal Reserve system balance sheet that is more than twice its size of two years ago. The federal funds rate is near zero and the expectation, as signaled by the FOMC, is that rats will remain so for an extended period. And the market appears to interpret the extended period as at least six months. Such actions, moreover, have the effect of encouraging investors to place bets that rely on the continuance of exceptionally easy monetary policy. I have no doubt that many on Wall Street are looking at this as a rare opportunity... The unintended negative consequences of such actions are real and severe and if the monetary authority goes too long in creating such conditions. Low rates over time systematically contribute to the buildup of financial imbalances by leading banks and investors to search for yield... The search for yield involves investing less-liquid assets and using short-term sources of funds to invest in long-term assets, which are necessarily riskier. Together, these forces lead banks and investors to take on additional risk, increase leverage, and in time bring in growing imbalances, perhaps a bubble and a financial collapse... While we may not know where the bubble will emerge, these conditions left unchanged will invite a credit boom and, inevitably, a bust. I am convinced that the time is right to put the market on notice that it must again manage its risk, be accountable for its actions, and cease its reliance on assurances that the Federal Reserve, not they, will manage the risks they must deal with in a market economy."
Too bad Hoenig's brilliant summary of the bubble falls on deaf ears. Bernanke will stop at nothing before he transfers all remaining middle class wealth to a few hundred thousand bankers and then retires to an unaddressed hut in the woods.
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Guess he didn't like that savings rate print..
Better not be a hut in the Vermont woods... capiche?
The question is whether he is just speaking for himself or the broader Fed. If he's just speaking for himself and he's just one vote, well, fat lot of good it will do, even if he's right.
Remember, the thing about the Sith is that there are always two. Maybe Emperor Bernankatine tires of Darth Tim?
This man is quite the opportunist.
Opportunistic as in "let's give equities a scare in light of our longer maturity auctions this week, and while we are at it, throw a cheap bone to the folks on Main St" ?
Maybe he means it, maybe not. I've heard Bernanke give the watered down debt 12 step program speech to Congress on numerous occassions, but then he takes actions that insulate Congress, Wall St., voters and others from the consequences of poor decisions. What's that saying about actions speak louder than words...
Yes, oppurtunist in the sense that he looks like he knows what is best for 'Merica. Say hello to you next Fed Chair.
whoa, sanity..... where do these wacky-ass rationality-laced ideas come from? And shouldn't Hoenig be living in a museum of natural history or something?
"The federal funds rate is near zero and the expectation, as signaled by the FOMC, is that rats will remain so for an extended period."
The typo mad me laugh.....sorry, I know, little things please little minds.
Sure, let the non-voting member do the chicken hawk dance for the sheeple.
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Bubble Artist in Chief in the woods? Don't let his skills be lost, he can always perform before the kids.
Brilliant! LOL!
This one made me write it after I realized that all the most talented bubble artists are on the governments payrolls or grants:
http://www.youtube.com/watch?v=eV6Wh-KX3bY
this is a joke, right???
the search for yield?
longer term, higher risk?
oh, I get it.
Rates should be put higher so money can be earned short term with little or no risk or any relation to producing anything.
this article falls into the same category as articles titled "Pension funds to seek higher yields".
Like where?
I guess the stock market with its low, low risk and ZERO 10 year return is a shock to the pension fund financial models.
duh.
yield is invariably related to earnings.
the real answer is they can't possibly make all the money they need to make to meet their obligations.
Wow he just doesn't get it . This is about proving Bernanke's is right at all costs and protecting his ego. Even if Bernanke realizes what a mistake he has made there is no turning back now because his ego has grown to monstrous proportions and it wont allow him to admit it . Shit, his crazy experiment might have worked if he put all of that money at the bottom of the pyramid instead of the top especially if it was zirped .Can you imagine the new credit boom if all US consumers were brought out of debt and got to start over again ? Instead he put it into blackholes on bank balance sheets and expects a recovery after 20% of people have lost their jobs or are making less. PUTZ.
Bernanke this morning, Hoenig in the afternoon; playing Good Governor/Bad Governor.
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In the for what it's worth department. A local branch manager for Huntington bank said the bank was not paying back TARP as it expects a double dip recession and if banks need money again, that window will be closed.
Hoenig may be right. He knows a lot more than you and I. It wouldn't surprise me to see that the banks have unleashed a few hundred billion of new loans, or at least they are trying to. Did anyone notice the full page ads from JP Morgan last week stating that they were ready willing and able to loan some money. I saw them in the Wall Street & Dallas Morning News. Hell, my banker actually picked up the phone and called me yesterday to see if I was ready to start a new project. It's kinda odd that I got a call like this considering the bank regulators just finished their audits 2 weeks ago. Buzz is probably right, just smoke and mirrors.
RS....I have a couple of gold balls investor friends who told me a similar story last weekend. I suspect the Banksters are feeling heat. They are getting more aggressive at trying to lure loan business from those who don't ask for it. Makes their performing margins better if they can open some secure lines ( or what they perceive to be secure ).
I agree it's more smoke and mirrors bullshit with a political kicker.
This is how to kickstart hyperinflation, surely.
Unaddressed hut in the woods, that is EXACTLY where Paulson's whipping boy Neel Kashkari ran off to in the aftermath of the massive TARP fraud... then after his disappearing act for a while he joined PIMCO as a Managing Director in charge of new investment initiatives. You just can't make this stuff up!
The guy is right - and it is so obvious. He want FF rate at .5-1% which is still low. It will keep the market more balanced and offer a little relief to savers. Then again, Bernanke wants us to consume more/save less now. If Hoenig does not watch out, Obama may have him water boarded down at Gitmo.
Not if Janet (Gellin') Yellin has a vote Tommy boy.
It’s debatable whether the negative consequences of low interest rates are unintended. I believe the central bank’s purpose is intended, namely to transfer the value of sound money from the hands of investors trying to avoid risk and savers and retirees hoping to hold their nest eggs together as long as possible, to the banks and their officers. The Obama Administration has been accused of trying to transfer wealth from taxpayers to its constituents. In this case, the Fed is engaged in wealth transfer for the benefit of its constituents, the private banks who own the Federal Reserve.
Too bad Hoenig's brilliant summary of the bubble falls on deaf ears. Bernanke will stop at nothing before he transfers all remaining middle class wealth to a few hundred thousand bankers and then retires to an unaddressed hut in the woods.
Excellent statement, Tyler. But I think the little people's ears may be perking up. From Kipling’s A Pict Song:
We are the Little Folk – we!
Too little to love or to hate.
Leave us alone and you'll see
How we can drag down the State!
We are the worm in the wood!
We are the rot in the root!
We are the taint in the blood!
We are the thorn in the foot!
Mistletoe killing an oak –
Rats gnawing cables in two –
Moths making holes in a cloak –
How they must love what they do!
Yes – and we Little Folk too,
We are as busy as they –
Working our works out of view –
Watch, and you'll see it some day! –
Rudyard Kipling’s Verse Definitive Edition
"While we may not know where the next bubble will emerge,"
Uh....have you looked at equity valuations lately Tom? Commodities?
I saw that quote and had my biggest guffaw laugh of the day.....still have a bellyache from it .
Doesn't making a quasi-Hayekian or Misesian argument get you sent to the fed dungeon for re-education?
Watch out Tom...
Hoenig is the Fed's barking dog, sent out to convince market there is balance in there. It is a lie, he said those things for the bond market for this week's auctions, he always does that. Like all well-groomed dogs, he is suppose to bark, not bite. But every single comment thinks he is speaking his mind - he is not. The Fed is trying desperately to convince Pimco and the hedge funds taling position spreads one way or the other not to take too long to un-wind, meanwhile, market should "Trust the Fed" to do the right thing. Wake up people! Its a lie a mirage a puppet show.
So what are you saying?
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