EXCERPTS:
"The US must fix its growing debt problems or risk a new financial crisis, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, warned on Tuesday, adding a mounting deficit could spur inflation.
Mr Hoenig said that rising debt was infringing on the central bank’s ability to fulfil its goals of maintaining price stability and long-term economic growth. “Stunning” deficit projections were putting political pressure on the Fed to keep interest rates low, infringing on its independence at the risk of inflation, he said."
"...he said that the worst option for the US was a scenario where the government “knocks on the central bank’s door” and asks it to print more money. Instead, the administration must find ways to cut spending and generate revenue. He called for a “reallocation of resources” and noted that the process would be painful and politically inconvenient.
"If the Fed succumbed to pressure to increase the money supply, Mr Hoenig said, inflation would lead to a loss of confidence in the dollar and in the economy. Meanwhile, a potential stalemate between the fiscal and monetary authorities that govern the economy could allow growing imbalances to go unchecked, thus raising the costs of borrowing and of capital for the US.
NOTE: "When Thomas Hoenig became president of the Kansas City Fed in 1991, he received a 500,000 German mark note from an 85-year-old neighbor—reminding him of his duty "to protect the value of the currency." The neighbor told him the note would have bought a house in 1921. By 1923, it wouldn't buy a loaf of bread. Hoenig, lone dissenter at the last FOMC meeting, said Tuesday: "That note is framed and hanging in my office."
