Lowering interest rates to effectively zero and playing all kinds of games to hold them there indefinitely may do more harm than good in the long run.
One of the few members of the Federal Reserve Bank who take this view, Thomas Hoenig, is retiring Oct. 1. Here’s what he says in his parting speech:
“When you encourage consumption by inhibiting your interest rates from rising to their equilibrium level, you will in fact buy problems, and we have in fact bought problems.”
The good news is that while Hoenig expects slower growth for the foreseeable future, he does not expect the economy to “fall off the cliff.”
He is being replaced by Esther George. We’ll see what her views are in the months to come – particularly about this cliff thing.
I shot this photo, by the way, while touring the Moots bicycle factory with Hoenig this summmer. Hoenig is also fond of a notion that too many others find quaint: that the United States actually needs to make something.