Kansas City Fed's Hoenig Warns About the Monetization Threat. Again.
WSJ grilled Kansas City Fedhead Thomas Hoenig about everything from bank supervision to inflation and it's no surprise that the remaining badass of the FOMC is concerned that there will be pressures on the Fed to monetize everything that isn't nailed down.
Apparently Mr Hoenig has been in a coma for the last two years while the monetization has been in action right before his eyes.
All of this makes sense, but there is still the ugly fact that unemployment is near 10% and the economy is operating well below its capacity. Isn't that an argument for easy money?
"I certainly agree that there is a lot of slack in the economy," Mr. Hoenig says, though he reminds me that things have been picking up. More importantly, he argues that based on research he has seen, "output gaps [a measure of excess capacity in the economy] in most circumstances have not been particularly useful as a predictive tool. And in my own judgment, that's correct: In the '70s when we had a very long period of negative interest rates, we had what people referred to at the time as stagflation [inflation with little or no growth]. I think that's a possibility. It's every bit as much a possibility as whatever it is these individuals are talking about with this output gap."
Why? Because, he says, "we have a very, very accommodative policy, we have a very, very significant deficit, and we will have increasing pressures around that deficit and in funding that deficit."
Sounds like someone is worried about that very, very accommodative policy, eh?
See Hoenig's performance last week in Kansas City Fed's Hoenig: Our Only Choice Will Be to Monetize the Debt If This Doesn't Stop