Tuesday, February 16, 2010

"Three Paths Forward" - Kansas City Fed on Current U.S. Fiscal Imbalance, Hyperinflation, Printing

It's a rare and welcome event to see the Fed discuss the horrible fiscal policies in Washington D.C., monetary printing, and hyperinflation. For a voting member of the FOMC to do so makes it all the more welcome.

Inquiring minds are certainly interested in Knocking on the Central Bank’s Door by Thomas M. Hoenig, President, Federal Reserve Bank of Kansas City. http://www.kc.frb.org/speechbio/hoenigp ... .16.10.pdf

The United States is moving into an era in which government finance is taking center stage. Fiscal measures taken to bring the economy out of recession, mounting longer-term liabilities for Social Security and Medicare, and other growing demands placed on the federal government have invited a massive buildup of government debt now and over the next several years.

Congressional Budget Office (CBO) projections have the federal debt reaching an unsustainable level of two to five times our total national income within the next 50 years, which leads us to an inescapable conclusion—U.S. fiscal policy must focus on reducing this debt buildup and its consequences.

In managing our nation’s debt going forward, it strikes me that we have only three options. First, the worst choice for our long-term stability, but perhaps the easiest option in the face of short-term political pressures: We can knock on the central bank’s door and request or demand that it “printâ€