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The Fed's Sole Dissenter And Voice Of Reason Speaks: "I May Be Alone, But That Doesn't Mean I'm Not Right"
When historians sort through the rubble of the Fed (and capitalism in general), Thomas Hoenig's dissent to Ben Bernanke's lunacy will stand as the only strand of rationality that could have prevented the collapse. Too bad he is, as he himself points out, all alone. Some critical, and mostly ignored by the Fed, comments by Hoenig, from an interview the Kansas City Fed President gave to Fox Business News yesterday.
On being the lone dissenter:
“I may be alone, but that doesn’t mean I’m not right. It just means I’m alone.”
On what the FOMC will do about raising interest rates in the next few months:
“We will continue our exit strategy. And part of the exit strategy is to allow the short-term Fed funds rate to become more normalized over an extended period of time. But in the sense of movements, not in the sense of zero.”
“So, you have to get off zero and you have to start that process. Now, it’s going to take several quarters. If you want to start carefully, you don’t want to shock the market, so it will be very modest. Just removing the language has its own implications. We need to move very carefully, very cautiously. But doing nothing is a decision and has its own set of consequences.”
On why he dissented on the lack of change in interest rates:
“I’m looking down the road, further ahead. Monetary policy isn’t just about today, it’s about the future. We are at nearly zero interest rates; that’s not sustainable over a long period of time without causing other distortions in the economy. Even if we were to raise interest rates now to one percent or two percent, that’s a very accommodated rate. And to get to that level, would take several quarters.”
“My point was to not provide the market the kinds of guarantees that we would keep the interest rates zero to let the market begin to adjust to know that things can change so you don’t shock the market at a later date and I think that’s very important.”
On his outlook for the economic recovery:
“I think we do have a recovery that is sustainable, across the board. With this, we are beginning to see a greater confidence building which is very important to the sustainability. A 3 percent growth projection is reasonable and conservative for 2010.”
On the threat of resurging inflation:
“I don’t see it on the immediate horizon, no. I’m of the view that having an extended period of low interest rates in the early part of the decade of the 2000s did give the markets a very easy credit environment. It was a contributing factor to the crisis that we are now working our way through. We need to be mindful of that.”
On when he wants the FOMC to change their language on interest rates:
“I would have liked to have seen it last meeting.”
On whether he is worried about asset bubbles over inflation:
“I am worried about both. I do know the conditions that contribute to asset bubbles and zero interest rates are one of them.”
On small businesses being affected by short term interest rate changes:
“Have small businesses benefited from an extended period in the past of very low interest rates? Those things matter…so yes, there will be some adjustments. I’m more interested in an economy that works through supply and demand mechanisms, through the allocations of resources to small and other business based on returns in the longer run that those businesses can bring.”
On housing:
“Housing is going to struggle for awhile. It will take more than a few months. It will take the rest of this year and into 2011, but it will adjust.”
On exports:
“We do need to bring a better balance to our international trade system over time.”
On the atmosphere in the FOMC:
“They are very intense. They are all very committed to this. Now, we have different opinions and I think it is important that we express them and we do. It’s not personal, it’s professional.”
On whether he has challenged Chairman Bernanke:
“You can’t always have a unanimous. I don’t think you get better outcomes by having unanimous. You have differences…that’s a good thing, not a bad thing.”
On the FOMC differences under Greenspan vs Bernanke:
“I’m not going to say it’s different, because I dissented with Greenspan.”
On Dodd’s bill proposals making the NY Fed Chair a Presidential appointee:
“I don’t favor them. I’m not sure that the outcome will be anything but worse.”
and the other parts of the interview can be found here and here.
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Hoenig--The Lonesome Hawk
With this, we are beginning to see a greater confidence building which is very important to the sustainability.
A confidence game thus the reason for all the positive spin on negative numbers. I would rather it be built on fundamentals that way the confidence wouldn't be an illusion.
This guy is nothing more then a steam valve. In the "mighty" Kansas City Fed. Look at his comments about the economy, and then match it up with what he has to say about malinvestment. Doesn't match up now does it?
"mighty" KC...LOL. Yeah, I was going to say...there's a reason he's not in NYC.
Good, sound and honest comments. He tells it like it is and doesn't dress it up like Ben does. BB is the most politicized Chairmen in memory going back to Volcker. Volcker and Greenspan spoke with firm and believable views. Right or wrong, at least they were representative of the "right" person in charge of such a powerful institution. Today, it's different, very different.
Future outcome as a result, very very bad. We're up a 100, cash out.
gotta love walmart.
http://www.marketwatch.com/story/wal-mart-readies-next-round-of-food-pri...
i want them on my side if something breaks out.
If a trade war with China breaks out, thegreatWALMart will have almost nothing on its store shelves. They aren't on your side, they're in your pocket.
If Walmart's shelves are empty there will be riots in China.
No, there won't be.
The Chinese factory worker is not concerned with the shelves of America's Wal-Marts. The Chinese factory worker is concerned about being employed. It is irrelevant whether the factories produce goods for fellow Chinese or Brazilians. If you are a Keynesian, it is just as good to have one factory produce an item while another disassembles it into parts to be sent back to the first factory.
If Walmart's shelves are empty there will be many unemployed Chinese.
I think you are missing my point. The point is that it is not necessary for Wal-Mart's shelves to be stocked for Chinese factory workers to be employed.
Consider the model, the US trades Treserve debt to China in return for Chinese factory output. Now if the Chinese were spending USD to buy anything but Treserve debt, your view would be accurate beyond the short run, but since they aren't it isn't.
"The point is that it is not necessary for Wal-Mart's shelves to be stocked for Chinese factory workers to be employed."
If Walmart's shelves are empty many China dependent shelves across America will also be empty. And while some factory workers will continue to be employed many will not.In case you forgot the collapse in our markets in 2008 did not empty Walmart's shelves but many factories closed their doors and there were many riots across China.
http://china.blogs.time.com/2008/11/19/china-riots-and-the-world-financial-crisis/
http://libcom.org/news/chinese-factory-workers-riot-26112008
http://www.usatoday.com/money/world/2008-11-26-china-factory-riot_N.htm
In case you forgot the collapse in our markets in 2008 did not empty Walmart's shelves but many factories closed their doors and there were many riots across China.
Henry Ford put buggy whip makers out of business. Tomorrow is not always the same as yesterday. Since China gains nothing by obtaining a stack of Treserve debt, China's masters can almost as easily keep the factories humming and throw the output into a garbage pile.
Do you think the Chinese rulers didn't learn from what happened in 2008?
This is an amusing story to me, since I was just shopping at mal-wart earlier this week and noticed price increases vs. the prior month and and a dramatic reduction in selection of certain items (popcorn, for one). There are some office snack items I buy there monthly and can clearly see, and could even document, the price increases over the last year - most noticeable within the last 2-3 months.
More green shoots, I'm sure.
The system is coming to an end, this is the result of using a simple equation. There is no way to escape if you use exponential growth as your basis for your survival.
It's over, you can raise rates, you can keep them at 0%... there is no out, there is only in. And now everyone is IN some deep crap.
"Thomas Hoenig's dissent to Ben Bernanke's lunacy will stand as the only strand of rationality that could have prevented the collapse."
As nice as it would be to think that if just one person was acknowledged as correct and behaviour changed, the coming collapse would be/could have been prevented. Alas these problems are systemic, with all participants feeding from the same trough. That makes it impossible to acknowledge anything that would stop the feeding.
I often talk about how it's impossible to convince a person of "A" when he's paid to see "B". This also applies to the economic system. In fact, I would argue that if it were not for the system itself, the person would not be (deliberately) blind to alternative ways and explanations. It's almost a chicken and egg situation. What came first, the person unwilling to see alternatives or the system compensating him or her not to see alternatives?
ALONE, adj. In bad company.
-The Devil's Dictionary
Overrated. If he really wanted to be effective, he would quit and blow the whistle. Right now he's just a passive aggressive shit talker. pathetic.
Hey!
Don't talk about my father that way. My father is a lying, cheating, womanizing, drunk...I idolize the man.
This guy is full of BS. Of course FOX News is an outlet you can trust, yeah right!
Theoretical question: Why is zero percent interest on loans not sustainable? Multiple civilizations did this for thousands of years. In fact, the normal method of lending was not to make a "loan" per se, but to choose to directly invest in an enterprise with other people. The payoff was not interest on the loan but the actual productivity of the enterprise itself.
Someday we're not going to have capitalism (or socialism). It will be something else, and that something else might very well employ zero interest rate "loans" and yet be sustainable long term.
I think Hoenig is an interesting figure in the current scheme of things but I don't think he's looking very far ahead.
Zero interest would be sustainable if the entire system worked like that. But it doesn't.
So in the current system money takes the easiest path compared to everything else, i.e. zero interest vs 1-5% interest. Money floods in, people get crazy, and eventually it collapses under its own stupidity.
If the entire system worked like what you are suggesting, then yes it would be sustainable. Money would flow into the most promising prospects, because their rate of return would be (theoretically) higher.
Interest and more specifically compound interest is a barbarous relic. But unless you can somehow figure out how to do away with the powers that now control our current system, good luck every changing it before a cataclysmic collapse
Oh, I don't expect the system to change voluntarily. Wasn't it here on ZH that someone mentioned a study of nations over the last couple hundred years where, if that nation had debt-to-GDP ratios higher than about 75% and debt-to-export ratios higher than about 230%, those nations always collapsed in the past, with entirely new governments arising or the breakup of that nation into smaller nation states? I think the same study pointed out that we're at 96% debt-to-GDP and somewhere north of 700% debt-to-exports when calculated in the same manner as the study.
So it was more a theoretical question. After the current system dies of its own tumors run amok, maybe something else will arise.
The opportunity to borrow at ZIRP is limited to a very few, and thus very few benefit directly from it. The idea is that the benefits "trickle down." We have heard this one before.
I'm pretty sure Howdy Doody was a puppet.
Greyzone:
In theory, it's an approximate Fisher equation issue (i.e., the nominal rate of some term approximately equals the equivalent term real rate plus expected inflation over that term). Therefore, based on that (i.e., assuming that it is approximately correct), zero nominal rates are fine if there is no inflation and a zero or negative real rate of return. We still have inflation (and depending on whether you believe the government - it's relatively low, or Shadow Government Statistics - it's not so low) and a 'rational' person should expect a positive return (Otherwise, why, in the first place, invest?).
The fundamental issue is pricing, and the government (Hoenig included) has allowed most financial prices (especially real estate) to be in no small part determined by entities like the Fed.
"I may be alone, but that doesn't mean I'm not right."
Sounds like me when I talk to the "Gold to 2000 by April" crowd.
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