LOS DUENIOS DEL PODER ECONOMICO y el QE 2

US ECONOMIC OUTLOOK from FOMC y LAS CAMARAS DE COMERCIO

NOTA MIA SOBRE EL CONTEXTO POLITICO EN QUE SE DA EL QE 2
(HAZ, Nov 6 2010)

LA DERECHA ESTA DIVIDIDA Y EN LAS TINIEBLAS

El FOMC (Federal Open Market Committee) el comite de los grandes empresarios de EU es el eje del Banco Central llamado aqui Federal Reserve Bank y este organismo tiene tanta autonomia –posee su propia agenda dentro del Federal- como lo tiene el Pentagono. El eje del FOMC son las Camaras de Comercio. Son estos los duenios del pais y los que controlan la economia de la nacion. Ellos son los que trazan los planes y elaboran las cartas a seguir, Obama solo es el cartero de estos. Bernake y Geichner son los capataces o ejecutivos con derecho a voz y voto, pero quienes Mandan son los del FOMC y detras de este comite, las Camaras de Comercio del pais ( banqueros incluidos).

Este reporte que aqui transcribo fue muy criticado arriba, en las cupulas del poder financiero, al pueblo se lo mantuvo desinformado sobre quienes son estos personajes, que intereses representan y como financian por igual a democratas y republicanos. Acompanio una de las criticas a este reporte. Veran Uds que arriba tambien se cuecen abas, que estan tan divididos y tan en las tinieblas como los de abajo. Sin duda , la debacle politica avanza conforme avanza la debacle economica.
Solo en un punto hay coherencia en la derecha: el temor al socialism de los de abajo (socialism que aun no asoma pero que no tardara en aparecer) mientras practican el otro socialism, la socializacion de sus perdidas, me refiero a los efectos de la crisis que crearon. Obama hizo possible esa socializacion de las perdidas con los programs de salvataje a los bancos.

Hoy ya no es solo la banca interna la que esta en crisis, toda la banca mundial ha sido infestada por las maniobras sucias de los bancos Americanos. Entiendo que la banca mundial a traves del Bank of International Settlements BIS presiono a la Banca Americana a que asuma su responsabilidad en la limpieza del toxic waste con la que infestaron las cuentas bancarias del mundo. De aqui viene el QE #2 que como bien dijo un financista “este sunami de dollars es diferente al del 2008, con este no busca solo dar salida a los problemas de liquidez interna, se trata ahora de salvar la banca mundial de la insolvencia internacional.

En eso estamos y Geichner lo sugirio claro: las “booming economies” de paises en desarrollo son los que van a pagar los platos rotos.

En los EE.UU. los politicos de derecha exigen mas para sus amos, empezando por renovarles la evasion de impuestos por 10 anios mas a los que tienen ingresos mayores de 250 mil USD al anio. A ellos no les interesa la nacion, ni le tienen miedo al pueblo. La derecha siempre pedira mas y su reconquista del poder empieza en la caida de Obama y en la instalacion del neo-nazismo a nivel mundial.
Para ellos lo unico que hizo Obama fue tratar de evitar que estalle la explosion social interna y de eso no hay que preocuparse porque ya sobran soldados para cuidar la seguridad interna. Para la derecha la Guerra comercial y monetaria se gana destruyendo el poder militar de China y Rusia. Al nivel interno la derecha no tiene otro programa que no sea el de privatizar totalmente la salud, la educacion, el seguro social. Sin embargo al gran capital no le interesan estos negocios. Los banqueros confian en la inversion fuera del pais -con el QE 2- va a ser la solucion. Pero estan divididos y son ya dos los que discrepan dentro del FOMC y muchos mas los que dentro de las Camaras de Comercio y otros inversionistas fuera los que consideran que este QE 2 va a ser el final del dollar como moneda de comercio mundial. Es claro que el Fed Reserve Bank esta dividido y que las camaras de comercio tambien lo estan. Obama tiene que crear alli base social propia.

OBAMA EN EL CIRCO

Su plan debe evitar que caiga el dollar y se desate la inflacion descontrolada. Sobre todo tiene que ser radical y avanzar mas en lo poco que se hizo en trabajo, salud y educacion. Su mejor defensa es el ataque, y eso empieza por no hacerle juego al guerrerismo de Bush ni santificar el falso liberalism de las “bad apples” empresariales. Obama tiene que rectificar y profundizar las reformas inconclusas, empezando por detener los foreclosures y sancionando a quienes fraguaron esta crisis. Tiene que sacar las tropas de Iraq y Afghanistan, negociar convenios de inversion empresarial en Cuba y poner fin al bloqueo y sobre todo poner limities a la especulacion nosiva del QE por los especuladores que ya infestaron la banca mundial con sus “derivative scam” y quieren hacer lo mismo en el sur y con los BRIC. Obama tiene que facilitar la investigacion independiente del atentado terrorista de Sep 11 e impulsar sanction a quienes violaron derechos basicos del individuo (empezando por el Habeas Corpus) y otros consagrados en la constitucion del Estado. Clinton tambien perdio el mid-term pero fue reelecto. El pueblo tiene que sentir que el asume responsabilidad por la derrota en las elecciones recientes rectificando su politica, pero no en favor de la derecha sino en favor del pueblo. Solo si el pueblo siente que Obama puede salvar la nacion y no con palabras sino con hechos, el pueblo votara por el. Por eso es importante que deslinde con la derecha empezando por exigir sanction a quienes crearon la crisis en la que estamos inmersos. Si Obama no denuncia los planes de los neo-fascistas pierde y no solo el, pierde la nacion y el mundo.

LOS DEL FOMC Y LAS CAMARAS DE COMERCIO

Entre los duenios del poder economico en el pais hay dos personajes que estan en desacuerdo con el QE que se adopto por mayoria (4-1) . El mas destacado disidente fue Thomas Hoenig, al parecer simpatizante del Tea Party. Luego se sumo a la critica del QE II Charles Plosser, el Pdte del FOMC (Federal Open Market Committee) el organism del Fed que decidio el QE. Leamos la critica de Michael Shedlock al informe de Plosser. Shedlock un inversor y “advisor representative for SitkaPacific Capital Management (http://www.sitkapacific.com /) empieza reproduciendo parte de un informe de Bloomberg y luego reproduce parte del reporte que present abajo, lo referido a inflation.

Leamos a ambos, el economic oulook de Plosser y la critica de Shedlock a Hoenig y Plosse para darnos una idea del contexto economico en el que se da QE y para saber de donde vendria la critica interna si este plan de recuperacion falla, como varios inversionistas lo aseguran.

ECONOMIC OUTLOOK

http://www.philadelphiafed.org/publications/speeches/plosser/2010/09-29-10_vineland-chamber-of-commerce.pdf

Presented to The Greater Vineland Chamber of Commerce Vineland, NJ
September 29, 2010
Charles I. Plosser
President and CEO Federal Reserve Bank of Philadelphia
The views expressed today are my own and not necessarily
those of the Federal Reserve System or the FOMC

Introduction

Thank you, David Kotok, Bob DeSanto, and Dawn Hunter for inviting me to speak this
afternoon at the Greater Vineland Chamber of Commerce. I know David is proud of this
part of South Jersey, and with this warm reception and turnout, I understand better why he feels that way. Today, I would like to offer my perspectives on the economic
recovery in the U.S. and in the region, and the challenges that monetary policymakers
face in this economic environment. Before continuing, I should note that my views are
my own and not necessarily those of the Federal Reserve Board or my colleagues on the
Federal Open Market Committee.

My basic message is this: I believe we are in the midst of an economic recovery – a
modest one, but a recovery nonetheless. Over the last few months, we have
experienced something like the summer doldrums. The tail winds that helped propel
the economy earlier in the year have waned. Yet such a slowdown is not unusual in the
early phases of recovery, and we should not overreact to data that can be volatile and may be revised over time. My assessment of the recent data leads me to expect that the recovery will continue at a moderate pace over the next several quarters.

That the pace of the recovery is modest is disappointing but not that surprising. We are emerging from one of the worst economic and financial crises in 70 years. Economists have been saying for over a year now that this recovery would be a modest one and that it would be a long climb out of a very deep hole. And as we are all painfully aware, the economy continues to face some real challenges. Most troubling is the unemployment rate, which remains high at 9.6 percent. Still, despite a downgrade in the outlook for the second half of this year, I expect we will avoid slipping back into recession. And with continued economic recovery, we will gradually return to healthier labor markets.

Overview of the Federal Reserve System

Before I elaborate on my views of the outlook, let me offer some background on the
Federal Reserve. The financial crisis and the resulting regulatory reform have put the Fed in the spotlight. Yet many people still find our nation’s central bank a mystery.

Congress created the Federal Reserve System in 1913 with 12 individual Reserve Banks
rooted on Main Streets throughout our nation and overseen by a Board of Governors in
Washington, D.C. Ours is a uniquely American form of a central bank, with checks and
balances to protect and serve an economically and geographically diverse nation. As the central bank, the Fed is charged by Congress with providing the nation with a stable currency and supporting economic growth and employment. It seeks to achieve these objectives by influencing the cost and availability of credit through its decisions about interest rates and the supply of money. These decisions are the primary responsibility of the FOMC — the Federal Open Market Committee — the group within the Fed charged with setting monetary policy. The Fed also seeks to promote financial stability by providing oversight of key parts of the banking and payment systems and providing liquidity in times of crises.

The Fed has a unique public/private structure that operates independently within
government, but not independent of it. The seven-member Board of Governors,
appointed by the President and confirmed by the Senate, represents the public sector.1

The 12 regional Reserves Banks, each independently chartered with their nine-member
boards of directors drawn from citizens in their respective Districts, represent the
private sector.2

This structure imposes accountability while avoiding centralized governmental control of banking and monetary policy.

This structure also ensures that a diverse range of views is present in policy discussions and helps keep monetary policy decisions independent from short-term political pressures. The independence of monetary policy decision-making from the day-to-day political fray is an important governance principle. Good governance calls for a healthy degree of separation between policymakers who are responsible for spending the money and those policymakers responsible for printing it. History and economic theory teach us that it is far too tempting for governments to print money as a substitute for facing the hard choices of cutting spending or increasing taxes. The temptation is

1 As of September 27, 2010, there are four Governors serving, with three more nominees awaiting Senate confirmation.

2 Under the Dodd-Frank Act, only the six nonbank directors on each board may vote to recommend a Reserve Bank president, subject to the approval of the Board of Governors in Washington, D.C. particularly acute in times when governments are running large budget deficits. The consequences of using the printing press to finance government spending are almost always bad – higher inflation, higher interest rates, a weaker currency, and often more economic instability. Congress also chose to insulate monetary policymaking from short-term political pressures by making the Fed self-funding. That is, it receives no government appropriations from Congress. In fact, the System turns over any excess earnings above the cost of its operations to the U.S. Treasury. In 2009, this amounted to about $46 billion.

The individual Reserve Banks play an integral role in their region’s economies. For
example, the Philadelphia Fed provides currency and other basic payment services to
banks and depository institutions in eastern Pennsylvania, southern New Jersey, and
Delaware. We support community development activities. We help the U.S. Treasury
manage its cash balances. We also supervise numerous banks and bank holding
companies in our District under delegated authority of the Board of Governors.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 made many
changes to the regulatory landscape. Under this new legislation, the Fed will continue to supervise many banks, a responsibility it shares with the OCC (Office of the Comptroller of the Currency), the FDIC (Federal Deposit Insurance Corporation), and state banking regulators. The Fed will also continue to be the sole supervisor of bank holding companies and now has the added responsibility of supervising thrift holding companies.

Here in the Third District, this means that the Philadelphia Fed will soon supervise 38 thrift holding companies in addition to retaining supervision of more than 100 bank holding companies and 22 state-chartered member banks. As bank supervisors, we also will retain a role in consumer protection compliance for firms with less than $10 billion in assets. But the act requires the Board of Governors to transfer its responsibility for rule-making and enforcement for the largest banks and nonbanks to a new, independent Consumer Financial Protection Bureau.

Dodd-Frank is a massively complex piece of legislation, and many details remain to be
worked out in the rule-writing underway to implement the act. It is also highly likely there will be many unintended consequences. It is too early to assess all of its ramifications or whether it can achieve all of the lofty goals that people have assigned to it. Only time will tell.

ECONOMIC OUTLOOK

Now, let me turn to the national and regional economic outlook. As I suggested at the
start of my remarks, I believe our nation’s economic recovery continues on a sustainable path, with moderate growth and subdued inflation. All of us would like to see faster improvement in the job market. But the recession was very deep. Unfortunately, it will take some time to regain the ground the economy has lost. However, I believe the outlook remains positive.

The recovery officially began in June 2009 and is now in its second year. Yet, after
averaging almost 3½ percent over the first three quarters of the recovery, growth
slowed in the second quarter of this year to an estimated 1.6 percent.

Our monthly Philadelphia Fed Business Outlook Survey indicates that manufacturing
activity weakened over the summer, and in August, the general activity index turned
negative for the first time since July 2009. The September value increased but remained negative, just under zero. We should not read too much into monthly movements. The current activity index has, after all, dipped below zero in the midst of expansions before, notably in 2002 and 2003 as we were coming out of the last recession. On the national level, manufacturing continues to expand. However, the data suggest that the pace of activity remained sluggish over the course of the summer.

We saw the same kind of mixed signals in our quarterly South Jersey Business Survey.
Overall, economic conditions have improved slightly in recent months, but many firms
reported declines in employment.

And while firms responding to both our Business Outlook Survey and our South Jersey
Business Survey remain optimistic about economic prospects six months from now, they
are less optimistic than they were earlier this year.

Three temporary factors contributed to this slowdown. First, the temporary homebuyer
tax credits pulled homes sales forward into the spring and so what followed in the
summer was a dramatic decline in home sales. Second, the U.S. Census Bureau hired
hundreds of thousands of temporary workers but let them go in the latter part of the
summer, which distorted the employment picture. Third, the sovereign debt crisis in
Europe damaged the fragile confidence of financial markets. The lingering effects of
these factors all contributed to our summer doldrums.

In reaction to the recent data, many forecasters have scaled back their growth forecast for the second half of the year. Yet they have made relatively minor changes in their outlook for 2011 and beyond. So, despite the media alarm, these professional forecasters see a soft patch in the economy but a relatively small probability of slipping back into recession. Still, the pace of this recovery is slow relative to recoveries after other deep recessions – resembling instead the so-called jobless recoveries of 2001 and the early 1990s.

I know many in your community feel the pains of high unemployment. Vineland,
Atlantic City, and Ocean City share the unfortunate distinction of having the highest
unemployment rates in our region. Vineland’s unemployment rate is 13.5 percent,
significantly higher than the 9.6 percent rate in both New Jersey and the nation.
Changes in the unemployment rate, however, are typically lagging indicators of
economic activity. The reality is that businesses must be comfortable that the recovery will continue before they start hiring in earnest. I also hear from many business leaders that tax and regulatory uncertainty has dampened both their confidence and hiring plans. These concerns can be particularly detrimental to growth at this point in the cycle.

But other factors are also contributing to a tepid recovery. We entered this recession with an economy over-invested in residential housing and to a lesser degree commercial construction. We were also over-invested in the financial sector. In addition, many financial institutions and households were over-leveraged.

So when home prices collapsed, there was severe damage to household wealth. The
typical response to such a decline in wealth is that households consume less and save
more to strengthen their balance sheets. Given the oversupply of homes and the
decline in home prices, it is unlikely that home values will provide a significant boost to household wealth any time soon. This suggests that consumption growth will remain modest compared to past recoveries and savings will be higher. Ultimately, the higher savings and investment will benefit the economy, even though the short-term adjustments are painful.

I also believe that construction activity will be a much smaller share of the economy
going forward compared to the real estate boom years. Other sectors that are closely
related to the residential construction industry, such as mortgage brokers, may also
need to shrink. As a share of total employment, these sectors will likely be smaller than they were before the recession. So many workers in these sectors will likely need to find jobs in other industries. Such adjustments are painful for workers and their families and they take time.

Other structural factors may also be weighing on the labor market and retarding the
return to full employment. During this downturn, companies shed workers at an
unusually rapid pace. Yet, companies also increased productivity, enabling them to
produce more goods and services with fewer, but more highly skilled workers. As
activity picks up, companies are likely to look for more highly skilled, perhaps specialized workers. This means there may be a skill mismatch between job opportunities and the current pool of the unemployed. This skill gap may further explain the sluggish job growth.

Some of the unemployed, who may have the skills to find a job in another state, may
not be able to move because they cannot afford to take the financial losses associated with selling their current home. This limitation in geographic mobility is consistent with the observation that unemployment rates are typically above the national average in states where home prices have fallen the most.

Certainly not all of the 9.6 percent unemployment rate can be explained by these
painful structural adjustments, but these factors do suggest that it will likely take some time for the labor market to heal.

Can monetary policy help speed up such adjustments? It may be tempting to think so,
but monetary policy is not a magic elixir that can solve every economic ill. Doctors must diagnose the disease correctly if they are to prescribe the correct medicine. Otherwise, they could do the patient more harm than good.

While the Fed’s actions can help encourage spending and borrowing, monetary policy is
not designed to fine tune employment nor can it solve the sorts of geographic, sectoral, or skill mismatches I have just discussed. The Fed has already reduced the federal funds rate to near zero and provided $1.7 trillion in added liquidity by buying mortgagebacked securities and agency debt. And recall that while we were dropping the federal funds rate by 5 percentage points to near zero, monetary policy was unable to stop the rise in the unemployment rate from 5 to 10 percent. This suggests that very precise management of unemployment rates over the short- term is simply not something for which monetary policy is particularly well suited.

Thus, it is difficult, in my view, to see how additional asset purchases by the Fed, even if they move interest rates on long-term bonds down by 10 or 20 basis points, will have much impact on the near-term outlook for employment. Sending a signal that monetary policymakers are taking actions in an attempt to directly affect the near-term path of the unemployment rate, and then for those actions to have no demonstrable effects, would hurt the Fed’s credibility and possibly erode the effectiveness of our future actions to ensure price stability. It also risks leading the public to believe that the Fed is seeking to monetize the deficit and make it more difficult to return to normal policy when the time comes.

Inflation and Monetary Policy

On the inflation front, recent data indicate some deceleration, which has led some
observers to voice concerns about sustained deflation – that is, a prolonged decline in the level of prices. In my view, inflation will remain subdued in the near term, but I do not see a significant risk of sustained deflation. I anticipate that inflation expectations will remain relatively stable and core inflation will run in the 1 to 1-1/2 percent range this year and accelerate toward 2 percent in 2011.

Inflation in this range is not a problem – indeed, low inflation is desirable. Most people forget, or are too young to know, that from 1953 to 1965, the average inflation rate measured by the consumer price index (CPI) was just 1.3 percent. For the last 15 years, Switzerland’s average inflation rate has been less than 1 percent. In neither of these episodes did low inflation lead to economic stagnation or fears of deflation.

So I am not particularly concerned about low inflation per se, and brief periods of lower than desired inflation or even deflation are unlikely to materially affect economic outcomes. Yet it is important that monetary policymakers remain vigilant to ensure that neither disinflationary trends nor inflationary trends lead to an unanchoring of inflation expectations, which would undermine the return to price stability in the medium to long run. The stability of those expectations requires the public to believe that the Fed will act to keep inflation stable as the recovery continues.

Were deflationary expectations to materialize – and let me repeat, I do not see much
risk of this – I would support appropriate steps to raise expectations of inflation,
including, perhaps, aggressive asset purchases coupled with clear communication that
our goal is to combat deflationary expectations. But for such a strategy to be successful,the public must believe that the Fed can and will act to combat those expectations.

The Fed must be credible. Protecting that credibility is why, based on my current outlook, I do not support further asset purchases of any size at this time. As I said earlier, asset purchases in our current economic environment can do little if anything to speed up the return to full employment. But if the public believes that they can and is disappointed,it may have less confidence that the Fed will act to raise inflationary expectations if needed. Because I see little gain at this point, and some costs, I would prefer not to engage in further asset purchases at this time.

Similarly, if the economic recovery unfolds as I expect, the Fed will need to begin
normalizing monetary policy from its current very accommodative stance. That will
mean selling assets to shrink the Fed’s balance sheet and raising the level of short-term interest rates. The challenge for the Fed is recognizing the proper timing to ensure that the economy remains on a sustainable path toward price stability and full employment.

Conclusion

To conclude, after the worst financial and economic crisis that most of us have ever
experienced, a slow but sustainable economic recovery is now underway in our region
and in the nation. While the near-term outlook has softened a bit, I expect growth in
the national economy to be around 3 to 3½ percent over the next two years, with
stronger business spending on equipment and software, moderate growth of consumer
spending, and gradual improvement in household balance sheets.

The unemployment rate continues to be one of the biggest challenges our economy
faces. Although unemployment will begin to decline gradually, it will take some time for it to return to its long-run level. As the economy strengthens and firms become
convinced that the recovery is sustainable, hiring will pick up over the rest of this year and in 2011. But it may take even longer to address the sectoral, geographic, and skill imbalances that seem to plague the labor markets.

I expect inflation to remain subdued. As long as inflation expectations remain well
anchored, I see little risk of a period of sustained deflation. Over time, I see the Fed conducting policy in a prudent fashion so that inflation gradually stabilizes in the 1.5 to 2.0 percent range.

This has been a painful episode in our nation’s economic history, and many policy
challenges remain to be faced. Yet, I believe that, over time, our economy can and will
return to an environment of sustainable growth and low and stable inflation.

==========================

LOS CRITICOS DE HOENIG Y PLOSSER

“Open Dissent at the Fed: Thomas Hoenig Attends Tea Party”. By: Michael Shedlock , September 30, 2010.

http://seekingalpha.com/article/227712-open-dissent-at-the-fed-charles-plosser-philly-fed-opposes-qe2-thomas-hoenig-kansas-city-attends-tea-party

An open battle exists at the Fed concerning Bernanke's second round of Quantitative Easing (QE2).

Thomas Hoenig Attends Tea Party

Bloomberg reports Fed Dissenter Hoenig Wages Lonely Campaign Against Easy Credit
Thomas M. Hoenig, dressed in a gray suit, white shirt with French cuffs, and baby-blue tie, faces an edgy crowd of 150 people in a hotel meeting room in suburban Lenexa, Kan. A large “Kansas City Tea Party” banner covers a table at the door. Attendees wear anti-tax stickers on their lapels. This is not an after-dinner speech for which most central bankers would volunteer.

Hoenig smiles at his audience and begins: “This is a support-the-Fed rally, right?”

Dead silence. Then the room erupts in laughter. Disarmed, the Tea Partiers listen politely as Hoenig defends the Federal Reserve as an indispensible institution, even if at the moment, he says, it happens to be heading in the wrong direction.

And, by the way, if it were up to him (though it’s not, really) he would break up the biggest Wall Street banks.

This is Tom Hoenig’s moment, and it’s a strange one. In Washington, he is the burr in Fed Chairman Bernanke’s saddle: the rogue heartland banker who keeps dissenting alone -- for the sixth straight time on Sept. 21 -- to protest the Fed’s rock- bottom interest-rate policy. Hoenig warns that the Bernanke majority is setting the country up for an as-yet-unknown asset bubble: the next dot-com or subprime craze. He can’t tell yet where the boom-and-bust will materialize, but he can feel it coming, like a Missouri wheat farmer senses in his bones the storm that’s just over the horizon.

In abundant speeches and articles, Hoenig has condemned the political influence of the financial elite. “We’ve had a Treasury Secretary from Goldman Sachs under a Democratic President and a Treasury Secretary from Goldman Sachs under a Republican President. The outcomes were not good,” Hoenig says while being driven to a luncheon talk at an affordable housing conference in Topeka, Kan.

Hoenig harbors powerful misgivings over not dissenting more often and more forcefully during the Greenspan years. “He regrets going along with the votes when Alan Greenspan was chairman to get rates so low and keeping them so low so long,” says his friend Fisher.

There is much more in the article, including a discussion of the open debate between Krugman and Hoenig.

Philadelphia Fed president Charles Plosser joins Thomas Hoenig
Please consider Economic Outlook, Charles I. Plosser's speech to The Greater Vineland Chamber of Commerce September 29, 2010.

[[Aqui se reproduce el texto de Plosser que presente arriba]]

There is much to blast Plosser for. For starters, Quantitative Easing does not work as noted in Sure Thing?!

Moreover, inflation targeting is pure idiocy. For some explanations as to why please see Fallacy of Inflation Targeting. For further discussion, please see Does Inflation Targeting Make Any Sense?

Finally, it is perfectly clear that Plosser does not even know what inflation is. Yet, even if one did think inflation was about prices, the idea that the Fed can control prices in a global economy is sheer lunacy.

Nonetheless, it is interesting to see multiple dissents regarding Fed policy. Hopefully that dissent continues to mount.

Notas

1. Bloomberg reports Fed Dissenter Hoenig Wages Lonely Campaign Against Easy Credit.
http://www.bloomberg.com/news/2010-09-24/fed-dissenter-hoenig-s-campaign-against-easy-credit-has-roots-in-prairie.html
By Hugo Lindgren in New York hlindgren@bloomberg.net

============================

Extractos from Bloomberg reports: their view on Hoenig:

“Harsh Critic: While persisting in this lonely campaign for the end to ultra-easy credit, Hoenig has also been a harsh critic of Wall Street excess (an issue on which he and Krugman mostly agree). In abundant speeches and articles, Hoenig has condemned the political influence of the financial elite. “We’ve had a Treasury Secretary from Goldman Sachs under a Democratic President and a Treasury Secretary from Goldman Sachs under a Republican President. The outcomes were not good,” Hoenig said.

“Easy Credit: “What I took from that,” says Hoenig, “was that it followed a period of very easy credit. It followed a period when people felt prices could only go up.” Feel-good rates, in other words, led to excessive leverage and crisis. “I find it very interesting today,” Hoenig continues, “how many people don’t remember the late 1970s-early 1980s.”

Under the leadership of then-Chairman Alan Greenspan, the Fed drove rates down in response to the dot-com crash of 2000 and the recession that followed. Hoenig had a turn as a voting member of the FOMC in 2001 and dissented twice that year from rate-lowering moves, even after the September 11 terrorist attacks exacerbated the economic slowdown. Greenspan and Bernanke, who assumed the Fed chairmanship in 2006, have insisted that easy-credit policies during the early 2000s didn’t contribute to the housing bubble and Wall Street crisis. Hoenig disagrees. “The low rates in that era accommodated too much borrowing, too much leverage, too much risk-taking,” he says.

“Modest Recovery: His argument, in brief: Despite continuing high unemployment, a modest recovery is actually under way. Personal income and expenditures are up in 2010, if only slightly. Businesses are slowly adding back jobs, more than 700,000 so far this year. But the Fed has consistently maintained that near- zero interest rates are here indefinitely. “In trying to use policy as a cure-all,” he said in a speech to the Chamber of Commerce in Lincoln, Neb., on Aug. 13, “we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long.”

This is a minority view within the economics fraternity. Most experts are fixated on persistently high unemployment and the danger of the country slipping back into recession. In a column in The New York Times on Aug. 12 entitled “Paralysis at the Fed,” Krugman asserted that Bernanke “is being political, unwilling to engage in open confrontation with other Fed officials -- especially those regional Fed presidents who fear inflation, even with deflation the clear and present danger.”
“Financial Legislation: When community banks stumble, he adds, they are allowed to fail. When Wall Street collapsed, it got a heroic rescue. “I would break them up,”

Hoenig says of Citigroup Inc., JPMorgan Chase & Co., and Bank of America Corp. “They’re too big. They have too much political influence. When they get in trouble again, the temptation to rescue them because they are ‘too big to fail’ will be very strong.” The financial reform legislation enacted in July wasn’t tough enough; he would have liked to see the Glass-Steagall Act’s separation of commercial and investment banking revived, along with the imposition of strict capital requirements on the banks by Congress.

Despite his dissent on monetary policy, Hoenig argues that a strong central bank is vital. At the Tea Party dinner in Lenexa, he says: “I know many of you believe in ‘End the Fed.’” That’s your prerogative, he continues. But “you better have something else in mind” as a replacement. He gives a quick and chilling history lesson of U.S. financial panics before the Fed system was created in 1913.”
“Some Not Convinced: Some in the audience are not convinced. A bearded man approaches Hoenig after the talk and suggests that the Fed is part of a conspiracy “to collapse the United States” and establish a “one-world financial system.”

Hoenig wearily shakes his head. This is his third public event of the day, and it is 9 p.m. “Sir, I know times are tough,” the central banker says, “but why in the world would we do that?”
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