Fed Zigs, Hoenig Zags?

More often than not, the Federal Reserve presents a united front in as many of their statements as possible.  So we should take notice when – like now – there is a high profile departure from the consensus opinion.

“Monetary policy is a useful tool, but it cannot solve every problem faced by the United States,” Mr. Hoenig told local Chamber of Commerce members…

NY Times

Well, it’s a start, but something tells me that the members of the Chamber of Commerce already had a pretty good idea that 0% interest rates weren’t exactly a panacea.

“In trying to use policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long.”

A thinly veiled attack on Alan Greenspan? Give me more!

“I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no shortcut.”

Okay, okay – calm down.  This is not, I assure you, a glimmer of hope that sound monetary policy will return to the United States.  For one, Hoenig is still advocating “accommodative” policy – he just wishes it weren’t quite an insane policy.  Even that does sound good at first.

But what sets Hoenig apart from his collegues is that he believes the economy is even stronger than they do, and that we are sending the wrong signal to the market that it still needs help.  The country has already been turning around – in his mind – and he’s looking back on Greenspan’s failure to raise interest rates more quickly an example of what not to do.

While it’s hard to begrudge Hoenig for standing up and speaking the truth, it is perhaps a bit too bitter a pill to support him.  Firstly, he is still a true believer in the entire fractional-reserve fiat-money central-banking disaster of a system.  And secondly, the economy is – and this should be apparent to all – limping along rather poorly at the moment.  Yes, we’ve long heard of green shoots and corporate balance sheets… but this recovery just doesn’t seem to have teeth.  It never did.

Therefore, at best, I can only sympathize with Hoenig.  Since he is so optimistic about the economy, he has come to a different conclusion from his fellow co-conspirators.  Despite his advocacy of what sounds like reasonable monetary policy, we can only lament its foundation of sand: the false belief that we are growing our way out of yet another recession.

That the Federal Reserve has at last reached “the long run” that has been so artfully delayed, has not yet been understood by even the most well meaning officials.  To be sure, even Hoenig with his logical words, is still stuck thinking firmly within the box.  That the entire box is in free fall just isn’t something he can deduce from inside of it.