The lone voice of reason

Thomas Hoenig the president of the Federal Reserve Bank of Kansas City may be the only member of the Federal Open Market Committee who is willing to honestly review the role of the Federal Reserve Bank in our recent financial crisis.

The Federal Open Market Committee (FOMC) consists of twelve members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.

The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.

The FOMC determines Federal Reserve polices that control short term interest rates.

In the following article Thomas Hoenig is quoted after the most recent FOMC meeting:


http://www.kansascity.com/2010/08/13/2149021/kc-federal-reserve-president-rips.html

Here are some of his remarks:

The Federal Reserve’s zero-interest-rate policy amounts to a “dangerous gamble” that may be holding back the recovery and risking a repeat of the financial crisis that put us here, the president of the Federal Reserve Bank of Kansas City said Friday.

Hoenig said low interest rates and lax regulation during a deflation scare in 2003 helped bring about the debt-driven boom and subsequent financial collapse. And the Fed is risking a future crisis.

“If we again leave rates too low too long out of our uneasiness over the strength of the recovery and our intense desire to avoid recession at all costs, we are risking a repeat of past errors and the consequences they bring,” Hoenig said.

 I agree with Thomas Hoenig. The Federal Reserve held interest rates too low for too long causing an orgy of excess speculation. The current zero interest rate policies of the Federal Reserve will cause the same phenomenon to occur at some point in the future.