{"id":327112,"date":"2010-02-16T12:42:28","date_gmt":"2010-02-16T17:42:28","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/02\/16\/kansas-city-feds-hoenig-rising-debt-could-spark-economic-crisis\/"},"modified":"2010-02-16T12:42:28","modified_gmt":"2010-02-16T17:42:28","slug":"kansas-city-fed%e2%80%99s-hoenig-rising-debt-could-spark-economic-crisis","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/327112","title":{"rendered":"Kansas City Fed\u2019s Hoenig: Rising Debt Could Spark Economic Crisis"},"content":{"rendered":"

The U.S. government must take action now to prevent a rising public debt from sparking the next economic crisis, Federal Reserve Bank of Kansas City President Thomas Hoenig<\/strong> said Tuesday.<\/p>\n

In a prepared speech entitled “Knocking On The Central Bank’s Door,” Hoenig warned that the U.S. central bank may come under political pressure to finance the rising debt, a move that could bring higher inflation.<\/p>\n

“Fiscal policy is on an unsustainable course. The U.S. government must make adjustments in its spending and tax programs. It is that simple,” Hoenig said.<\/p>\n

“If pre-emptive corrective action is not taken regarding the fiscal outlook, then the United States risks precipitating its own next crisis,” he added.<\/p>\n

President Barack Obama earlier this month unveiled his $3.8 trillion budget for the coming fiscal year, which raises taxes and cuts spending, but which will still leave the U.S. with $8.5 trillion in added debt over the next decade.<\/p>\n

The increasing public debt poses a threat to the Fed’s goals of keeping inflation in check and ensuring long-term economic growth, Hoenig said.<\/p>\n

The Fed official signaled that hyperinflation–which occurs when consumer prices rise so quickly that a currency becomes worthless–was a possibility in the U.S. To those who say it could never happen in America, Hoenig said people should be reminded that “the unthinkable becomes possible when the economy is under severe stress.”<\/p>\n

Hoenig said Germany’s harsh experience with runaway inflation after World War I should be remembered.<\/p>\n

When named president of the Kansas City Fed in 1991, Hoenig said his 85-year old neighbor gave him a 500,000 German mark note. The neighbor told him that, in 1921, the note would have bought a house. In 1923, it wouldn’t even buy a loaf
\nof bread. The neighbor said, “I want you to have this note as a reminder. Your duty is to protect the value of the currency.”<\/p>\n

“That note is framed and hanging in my office,” Hoenig said.<\/p>\n

As a more-recent example, the Fed official cited Argentina’s case, in which the president of the Latin American country recently forced out the head of the central bank because he wouldn’t transfer reserves to repay Argentinean debt. Hoenig said inflation in Argentina, currently running near 8%, “will almost certainly increase.”<\/p>\n

Hoenig is a voting member of the Fed’s policy-making arm, which last met at the end of January when officials again vowed to keep interest rates at a record low for an extended period due to low inflation and high unemployment.<\/p>\n

A Fed veteran who has disagreed previously with the Federal Open Market Committee, Hoenig is concerned that the huge stimulus pumped into the economy by the government to fight a severe recession may stoke inflation.<\/p>\n

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<\/p>\n","protected":false},"excerpt":{"rendered":"

The U.S. government must take action now to prevent a rising public debt from sparking the next economic crisis, Federal Reserve Bank of Kansas City President Thomas Hoenig said Tuesday. In a prepared speech entitled “Knocking On The Central Bank’s Door,” Hoenig warned that the U.S. central bank may come under political pressure to finance […]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-327112","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/327112","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=327112"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/327112\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=327112"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=327112"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=327112"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}