An hour with Thomas Hoenig

from the leed center at the university of kansas kbr presents an hour with thomas hoenig president and ceo of the federal reserve bank of kansas city i mean it's been president of the federal reserve's tenth district since nineteen ninety one the region that includes kansas western missouri and five other midwestern and western states the federal reserve system requires mandatory retirement at age sixty five for its district presidents and it turns sixty five in september of this year his retirement is effective october first his replacement will be selected by the nine member board of directors of the federal reserve bank of kansas city businessweek it's called chronic the man whose products and midwestern commonsense vilified he spoke at the university of kansas leed center on october twenty fifteen thousand ten as part of the anderson chandler lecture series to the quay useful a business to great aunt had been asked to speak for this event and to have and he personally invite me to do so i am

honored and please guide you need to apologize to the audience because i looked at the list of those who've spoken for me and as i was talking with india i learned that last year the fbi has spokesman show movies and done i'm afraid i can't do that i don't have any movies worst showing i think his are a way to say it but i am going to talk about the economy tonight and i'm going to give you a perspective that is perhaps not unique today as it was served four months ago but it is my perspective the perspective is based on the civil war experience that i've had over the years as a member of the open market committee and as a midwesterner so what i'm going to do is give you my sense of the economy and where its going my sense of the issues around its direction and things that have to take

place in the united states as we move forward from here and then the issues around the policy that is now under discussion and getting a lot of attention in the media and to give you a perspective and then i i'm hoping we won't know i know i have plenty of time for questions first of all my view of the economy is that we are in recovery i agree with those who say it's a modest recovery and i agree with those who say the unemployment rate is too hard those are all true facts but most importantly the economy is recovering and i think that's what we need to focus on first if you look at our national income or we will grow somewhere in the neighborhood of two map percent issue depending on various events but to half percent is a reasonable

projection of how we will grow we will do that because in the past several months orders years the federal reserve has injected enormous liquidity and stimulus monetary stimulus into the economy and can't lose sight of that as we move forward in addition to that the fiscal stories have injected enormous stimulus is stimulus into the economy that does involve a tax reductions as involved spending time at state local as more substantial extensions of unemployment now doesn't matter whether you think that's a good idea or a bad idea it's a stimulus and ask a man to the economy and have an effect around that then is the fact that the economy of the united states itself has a very flexible economy and has made some pretty important judgments around the cement or adjustments about around the financial crisis that we endured and some the rebalancing of that so those things are in progress

and tell me that yes we stay on that course our economy will continue to grow and we will continue to add jobs and the economy for example for all its gone on the consumer and personal income growth in this country has been about a three percent clip since the first of the year that is a growth rate of about three percent person consumption expenditures have been slightly below that retail sales have been nearly four percent and this has allowed the economy from the consumption what to do to continue to grow and our economy over the decade of the two thousands have become very dependent upon consumption growth so it hasn't died away completely it is still part of our economy and in the aggregate demand an important to our economies growth our businesses have adjusted as adele dealt with this financial crisis

in this recession as it come back their balance sheets that is a non financial sector have strengthened and you've seen some of the earnings reports and those companies are in position to add to the growth in the economy but they are being cautious right now for a host of reasons but when you look at business and software investments that sets a first year growing at about six percent rate bill stronger than that when you look at technology investments specifically it's it's a growth rate is even stronger than that almost double that so our consumer and our businesses are continuing to be a part of every demand and bring the economy forward and we shouldn't lose sight of that at all now or international position it is in a sense a better because our deficit is far less than it was during the boom years we were running deficits with the rest of the world of almost six percent of our national income or gross domestic product it's down from there we've adjusted to the recession

and it is subtract from our national income but still is less of a negative than it was even before this crisis so the government spending there and the consumer still and the businesses we can see that the economy is growing and barring unexpected shocks will continue to grow because the stimulus is in place that's the most important message that's the most important message now around that are the issues that is amazing in some sense because this is growing very occurred where we have had to do as a nation really do some pretty substantial rebalancing for example our economy with its current account deficits the world's largest six percent of the national income which is actually was as large or larger than the growth rate international income was me meant that we were actually consuming as a nation more than we reproduce

more you can do that for some years and it's not sustainable over a longer period of time so we pull back from that and we've we've we still consume more than we produce but it's far less negative than it once was and it's continuing to get somewhat better for issues around that was extremely important to understand this rebalancing has taken place and the best reflection of that is that the consumer whose savings rate percent savings rate had fallen to less than two percent of our national income is now back up to see eight percent down was once over ten percent so we have a ways to go but we've come back and while we've come back even though the six percent our economy has continued to grow and therefore we're able to rebalance these very significant deficits and still grow as an economy we shouldn't forget that now at the same time are other challenge which is kurt and will continue to be a challenge going forward is our

federal deficit we have during the crisis in crazy heart deficit that is that the change in our national debt increase by one a half trillion dollars in two thousand and one half trillion dollars in two thousand n and estimates are that it will be over a trillion dollars in two thousand eleven and that while elliott stimulus into the economy it also puts enormous amount of debt and we're having to think about how we're going to deal with that going forward and i'll come back to that just a moment so with all these changes we have had to experience what a crisis that's been the worst since the great depression that we've had to experience and the excesses of the bike in two thousand we continue to grow now there are two issues is one is the fiscal challenge and that is the fact that we are running current that

we are running fiscal deficits that i described to you and what is happening with that is the toll that of the united states as a percent of its gross domestic product is increasing from a number that was less than sixty percent to a number that is quickly approaching ninety percent of our national income or gdp and we know other economists very reputable distinguish economists who've studied the history and that's among nations and what it does to their economy seven nine percent is about as high as you can go without that becoming unstable store near that i'm at that level people understand that and we have to deal with that challenge and yet not withdrawn so quickly that we get ourselves back in recession but also realize that if we continue it indiscriminate way that we will put ourselves in a very untenable deposition so right now the fiscal policy is supporting us but we have challenges there the other issue that i think is extremely important from my

perspective is monetary policy is important first of all understand the monetary policy under any definition has been and continues to be what i described as highly accommodative the federal funds rate that is our pulse rate them the open market committee or the federal reserve's policy committee's rate is near zero it was brought down to zero during the crisis to provide liquidity into the system to provide a if you will a backstop to try and make sure the recession had not worsen i would in that sense agree with those pulsing actions during the crisis but the crisis was in the fall of two thousand eight in the winter of two thousand nine and the worst of that crisis is behind us to have to think about what we should do going forward i've argued from the beginning of this year that we need to rethink that and to move our interest rates

off the zero i'm all talk about that and just seconds well but the other element of this is a concept called quantitative easing that is in addition to the low interest rates quantitative easing was also interviews during the crisis and what quantitative easing is is that the full reserve banks purchase assets or bring liquidity into the system an asset on your balance sheets so that we provide support in the economy for certain types of financial instruments we bought in the neighborhood one point two trillion dollars highly rated but still mortgage backed securities so that the housing market and the spreads in the market would be so down and will quit you would be brought into that and by doing that we injected a significant amount of money into the

economy brought assets under a bounty to help in the crisis and in the panic was going on in that full time of two thousand and one or two thousand and beyond and it was in that sense successful because it did help calm the markets and calm the economy now that is in place and there are some like myself who say that's that's behind us now let's let those roll off naturally so we can re normalize their balance sheets because the balance sheets of the federal reserve bank's when this crisis started i had to lead sets of about nine hundred billion dollars and today those two assets are two point three trillion dollars so that's how much expansion of their asset purchases went on that is that's how much quantitative easing will in addition to a reduction in the fed funds rate or upholstery to near zero

well there is a discussion going on at least in the media and among some economists and some of the over market because funds about additional quantitative easing up to make sure the economy continues to recover and it's well intentioned because many people see that the unemployment rate the united states today is nine point six percent and that's tupac and i would agree with that so to address that to try and bring that down more quickly there are those who advocate that we had additional quantitative easing that has purchased more assets could more eloquently else and have more of the economy searching for you therefore are willing to make more investments that will hopefully stimulating khan that's the idea that from my perspective of it is is you think it's true at the very much had my words were dangerous gamble going for because here's what your ears which are trying to

do with its quantitative easing they're trying to bring enough liquidity and that you first or change expectations about the economy that there are those in the various struggles academic and otherwise they think that the inflation rate right now which is around one percent of what we call core inflation is too low and that that is impeding the recovery if it were if inflation expectations were brought back to two percent than people would anticipate higher inflation they would purchase more goods increase aggregate demand bring more demand fourteen that would help the economy so that's important second of all why buying these assets invasion and the second level of quantitative easing you would lower long term interest rates could you would buy long term assets might lower those interest rates twenty to twenty five basis points and that would increase that would reduce the costs of borrowing reduce the cost of capital and therefore help stimulate the economy and therefore bring more jobs and the place and i understand there

are my concern as i've explained a publicly is that there are in mackinaw it's economics is about trade offs and so what are the downside risk of doing a downside risks are number one that have a pulsing when you're when you're affecting inflation expectations it means that you can find inflation expectations but experience theory lots of research shows that that is a nearly impossible task because monetary policy such a blunt instrument you put discount what he insists they're suddenly takes off and you you have to make choices that are much more difficult for example you bring a quentin and you bring rates down unless a you bring unemployment down from nine point six nine percent and the economy continues to grow on the say the growth rate income increases actually from

two and a half to say three three quarter percent and the argument in the markets and around the country become what you can take that and put it out yet because if you do the interest rates will go up and you'll cut that recovery sure unemployment is still high at nine percent so you will delay the removal of the very significant liquidity and by delayed at you i believe that in place and during that period inflation very modestly increases from want to say one and helped set relatively low the army goes you know you don't need to do anything right now to leave it there and you wait and credit becomes more available people start loosening up and the unemployment rate goes to a point seven you say well let's think about removing at that point of course the answer is now inflation's only two percent spike where we wanted it we have time and one is still too high leave in place keep buying the assets make sure the interest rates stay low

things will withdraw later so people delay markets get more profit there's more credit available people beginning to buy assets outside of their normal portfolio and so you begin to see inflation now go to three percent and by the time you get to the unemployment down to where you want to know whatever that number is probably below six percent up from when most people your inflation now has its own momentum and it was you know we can bring out is more harshly at that point which brings you into another significant crisis so that's why you need to think about these things what quantitative easing does what the risks are of the second thing is when you do that you buy government securities or mortgage backed securities through the simple way now that that sets a precedent because normally of the central bank's purchase on a very short term treasury securities that are mature on their own and only affect a very small part of

the interest rate environment so you've now what this is these securities government long term securities tenure for your securities that you've raised their products so that you want to withdraw all this and so researchers who sell the securities of course the interest rates go up and people have great great stress over there and they put pressure on it it says when the keynote but not only that remember those ways gentlemen the unfunded liabilities that is the new debt but has come forth from the government where we are right now is dramatic that the fund so security to fund medicare and at the moment the unfunded liability is in the trillions of bell hers and with the precedent set that you only by secure you will buy securities from securities then the argument will be very quickly to follow that you should be able to buy more securities to make sure

we can fund this liability without seeing interest rates rise cutting the economy's growth rate up now in the meantime we will all want to be there i was certainly do that but in the meantime inflation's continuing to increase from five percent to six percent to seven percent and suddenly you have an inflationary spiral that requires dramatic adjustments but why do i say that well first of all if you look at two periods in our history if you look at the nineteen seventies that was a period in which because we want to see unemployment stay loyal the central bank and others engage in a fair amount of the comedy a pulse and over that period inflation creeps up and was very slow withdrawal of the stimulus into the economy because forty percent of the time in that decade what we call real interest rate that is our policy rate less inflation adjusted for

inflation was negative forty percent are as a result inflation creeps up and then accelerated up until the nineteen eighties when we ended major inflationary problem and to correct that the chairman of the reserve then paul volcker and his colleagues on the open market committee ahead to constrain monetary policy put us in a very deep recession a very harsh crisis that popped in this part of the world an energy bubble and ag local a presidential real say bubble and a commercial real estate bubble and this reason alone three hundred and fifty banks fail that there was never an intention to have those banks fail there was never an intentional have high inflation there's always the intention to bring unemployment down quickly but when you have this kind of structural change it takes time for that to happen and when dr accelerated with monetary policy along you know you're making a bargain and fragrance

the second period in which we did that was in the decade of the two thousand in the decade of the two thousands religious rights and i describe you were negative forty percent of the time and during that period as interest rates went down to one percent in two thousand three and stayed there through most of two thousand for half of it and slowly very slowly came out real interest rates remain negative and as result credit extended for everyone we had lots of the expansion of activities murders as a very frothy economy and of course the two thousand seven things began to slow and two thousand eight we have a crisis now the intention in two thousand three when interest rates were barred angelo was that and unemployment was six and half percent wage too high and we want to bring down quickly and i argue that the consequence of that was to give us unemployment above nine point six percent

what your policy is not a fine tuning instruments that i like to describe it as a regiment where you have long term goals to say here's how much money there's discipline around the boundaries of that overt find a lousy economy to signal lauzon markets to work provides enough liquidity for credit to be granted but not so much that you're creating a nasa little that you create a recession it's not easy but requires that you stay within certain balance and that's the challenge that we have my own concern is that we are allowing because of this desire to well reasoned well intentioned desire to bring unemployment down with an instrument is not able to bring down scripted it would like that we risk then the next crisis four or five years from now an economist central bankers should always think of the long run always

now what i have what i have suggested very important in the communications around the open market and especially expressing my own news is i'm not for high interest rates my interest rates would undermine the recovery or none zero interest rates none zero interest because i asked people and in any cattle market any candidate can you you think it would work if you price for a product there's the real you think it would work as the price for the product is here why do you think it would work if you price some center credit and years ago it doesn't so let's allow the markets less well the rate from a modestly one percent over time with clear intentions as stan wait just the economy is recovering and move it back to even a more normal levels two percent other countries of them that his work reasonably well and they therefore allow their economy the sun the signals other economy that are

more stable growth that fictional more time to bring the unemployment rate down what's down stays down and thats really what you want a sustainable one growth is stable long term interest rates and maximum employment in the long run and that's really what a lot of the discussions while the differences are about whether whether you should do this as quickly as possible or whether you should do this with what i think of my words of course discipline and more certainty over the long run so that's kind of the story and that's kind of the sense of the debate is going on in america today and i think it's it's an important discussion to have i don't necessarily know with certainty that i'm right but i have seen the crisis of the eighties and it's present have seen the last crisis i've seen even some of the fallout from ninety one and so i think and i understand the theory and i understand the empirical work around monetary policy and i think it's a reasonable position to take

so i promised i would leave type questions and actually talk more than i thought i was going to end up open up to you you're listening to thomas hoenig president and ceo of the federal reserve bank of kansas city this is kansas public radio and my opinion of a majority or minority well right now that the vote is a nine to one and i'm not in the mine well the question is what can enhance the growth of small businesses in the economy and the current set of circumstances the first i would tell you is that we're seeing some increase in more modest very modest in terms of credit for smaller firms but it's coming very slowly and that's but it's not just in that sense now the largest firms

have very large cash balances so they'd only the credit the smaller firms do need some credit but then the main thing that what happened there is as we continue to improve and as credit becomes more of a warning and i think one of the issues around zero interest rates is if the final commercial bank and i know you are have the five bar was or when i can win back the federal government for three and i'm not going to think about my term because that's where the wrist lie i'm going to get that that and to get that spread so is interest rates come up a little bit and i think they'll be more supply for credit not for the small business what what is happening is that will strengthen as it always does as a recovery continues on there will be confident spill will be greater demand for expanding slightly and then that will build upon it and that takes time i heard there are no

shortcuts you can go through this horrendous crisis this horrendous recession and suddenly think the next day things are back to normal it takes time and that's what we're in the process of and we are now in our second year of recovery and if we stay patient we are seeing the demand pick up the supply will be there and the economy will recover now we have some issues the first issue is as you will know if you're in business is how to absorb the health care insurance reforms it's not an unclear if you're for or against the marriage do have to start analyzing still have to figure out how to fix your business what does your cost that process is going on the second is we have a twenty three hundred page legislation is legislation on regulatory form that is nominees he read it takes time it affects banks and their exposure the risk and so they're

going through that right now and that will work its way through the economy so i think it's it's in process i think it will strengthen i just always see it going on how to control now a couple things that i didn't mention that i will now and that is as you see this what worries me about i don't like policies continue to grow and demand for small cut for small business loans pick up a supply be available when i see issues like the price of gold the price of commodities and then i'm reading now in our region of the country auction for farmland which are fifty percent higher on average across all land ten percent higher as they deploy this is inflation hedge can go wrong with land and so forth those are those of the bubbles that i see gently popping up that we're in a little bit and that would cut that that growth for the small this is off and i don't wanna see them so we're getting there

takes time we need to continue their first thought like say it i tend to agree with your viewpoint and wish that it were not so much a minority report on the half open market committee now i have two questions be up first recently treasury secretary geiger indicated that you felt that currency devaluation was not a smart policy and that in the same week found their party chairman robert navy has said that the inflation rate was too low and has obviously a proponent of further quantitative easing and that that you at first glance those two positions seem to be somewhat contradictory sight appreciate your views on that and then the second question is that there seems to be at the recent g twenty meeting high a disconnect between now that you see the interviews on austerity and the united states is views expressed by us secretary

got her not appreciate your views on that also questions in there until someone like him you know someone like an answer and on the issue of course i really don't get in the middle of that because that's really under debate right now but i will i will make a general statement of a good friend of mine admire greatly once told me said tommy said that you really cannot solve world hunger by eating when someone else's lunch and so i take that apart and when you get into when we get in the currency wars everyone loses and that would be a very bad thing so that's as far as i can say about that now on the austerity measures i think that's going to be that's an interesting relative experiment if you will yet the ecb yet european union the modest but then you know in terms of their cutbacks and then the european central bank has

been buying sovereign debt so they've been expanding the uk on the other hand he is making significant spending cuts to bring their a bounce the deficit back in and lying and in control and then we are at this point still spending and turned the stimulus and who will see how those develop on the issue of our fiscal position i will tell you that no country not even the united states can run consistent deficit's love ten percent of their gdp that is fiscal deficits of eight nine ten percent of their gdp and not have major problems of stringy end as i said our debt to gdp ratio is close to nine percent that is kind of a tipping point as estimated by other cops that what worries me

is that we we we find ourselves playing baby words politics playing chicken with one another and that will that that is not fair to the american people we do as a nation have to take and deal with our fiscal deficit and our debt we know that or our children and our grandchildren will suffer not as dramatically as you think not not not a major we'll become a third world country but the twenty five basis for a quarter of a percentage point reduction in the growth rate as an enormous effect on your wealth over generations and that we have to keep in mind so what i have done when people that it was the first toy that agree on one yet agree that you need to get your debt as a percentage of gdp down over time and i suggest targeting a decade with two year benchmarks for years happens the election cycles and if you if you're doing that then as a

congressman or senator or whomever you can brag that you've kept that and andy i think you will see a construct because people gain confidence that were dealing with the deficit in a careful thoughtful a not a mother your reaction so that would be number one and then want to agree on that principle then you have to go back and say i were were has what where are they if you will the pulse points so you focus on spending as i got out of hand the mostly bring that down what's happened revenues what you do with your tax base and so forth and that's we had a debate but you put yourself on a very firm time line to solve those problems that you've announced to the american people very very risky i realize you're elected official i i don't question that it all but necessary for the president of the country and one of the things we did in past years we've done just a goat as a star that is you can increase

spending that revisionism or else either no escape hatch is that gets you started and then you go from there if we do that i think will bring great confidence to not only the markets not only wealthy but the main street we are curious about you in a way that doesn't ruin our economy and over time strength and i think you'll see a great improvement in confidence in our business community and in our consumers were not a characteristic that ended thank you ok that's your education resume still live in this product but the question is more like a lover i'll do we have another crisis mainly mainly mortgage foreclosures and global impact of peppy well certainly the issue of foreclosures his is a serious matter i don't think it's it's really does

not have to be a crisis you helped lay a poorly executed system around the last booing where you have documentation issues but you can get back into those who can straighten out the paperwork you get that get the system working and that i think we can do without and if you saw the sales numbers on existing homes are up pretty significantly we were negative that i hope frankly that we don't go back to the pre crisis brewing around mortgages because it put people in houses they couldn't afford them but no down payment no doctrinal issues are now talking to us but we can and we are as people safe build the down payment and why the house then we are well served by that and that's a process going on right now and i think that's where we are i think his paperwork thing is serious i don't and all this massive but it is solvable if we choose the sofa and that's really what we're under way looking at right now

and yes i am so saying that the federal reserve does decide to break a relatively large semi to cover up this call to reasoning and what type of them an impulse is to be implemented to say that the market doesn't mike stoller like japan's market has and reacted in an honorable way to the government's trying to inflate the market well since i don't have a good answer for that creature so i don't know i because what you're doing is you're putting that'll put me out there assuming it will be deployed as it searches for you in a successful manner we are a little different now a little bit were a lot different in japan to have a different demographics they had a part of their issue was which is something that we have to think about they also engage in in the job because there'd be other debt to gdp

is to one percent so when they thought the recovery may increase your taxes called the comeback it's a constraint so that was one of the things that they did that hurt their recovery going forward so i don't i don't use japan as a model i work i do i do point out that it didn't work and it therefore would be careful and following that model and i think cars would be a little bit different but i don't know that i would have a different i think you're a real risk to quantitative easing and there are long term my real concern is long term serious risk as well and that that gives me some concern i wonder if you could go back roads of the micro kid and there are little city where i was mayor in nineteen seventy four we did occur and sidewalk program it was nine hundred

dollars per man woman and child and the national debt was twenty eight hundred which for individuals or individual why burn the barns and ninety five it was but twenty two thousand five hundred players were i divided through these trillions by the three hundred and five million americans and i came with a hundred ninety five thousand dollars per man woman and child in other words we all have a mortgage for o because the national homes or two hundred and ten thousand and the down payment for one eighty five but we don't hear will become ordained help me understand how the heaven we're going to get out of this well i'm content is that they just listen to me would be

ok but i don't think that's the answer you're looking for it is it's a real issue he won that one of the discussions that we have to kind of make up our mind about is what kind of a nation we choose to be and we all have to live beyond our means so if you're a family and you lived beyond remains are certain consequences for a country if you look beyond the main their shared content takes longer to feel the forefront of those consequences but you still have consequences that you needed you so what we have to do is number one for example a one percent inflation which some people say is too low i'm very comfortable with one percent i wish it were actually a lot more than that because cents or war to the price index has twenty three times higher than it was then that's how much inflation we brought into the system favors debtors analyzes savers there's nothing fair about that on the

assumption that will that inflation is good because it increases it man and i'm not as convinced of that but that's the argument so what we have to say it we need to get our debt under control and we need to have a monetary authority discipline of the expansion of money into the economy of those are two things that really now i am willing to bet that if i ask this audience do they really wanted to see you there deficit contained rundown manager brought down ninety percent might say yes if i ask you are if you are in the ag sector that you would be willing to give up or subsidy or if as a homeowner you would give up your deduction on interest if you're in the energy business if you would give up your subsidy for

certain expiration or wind energy or ethanol you would give him a different answer as long as you're willing to give me a different answer to the second question you will solve the first question and that's where we have that's where we need to get ourselves organized now i think it can be done i think one of the issues right now people don't feel a sense of fairness and the lord says to jesus country were bailed out the ceo of those companies continue to be a very sizable bonuses you you've got to deal with the issue of equity of if you will a cause shared sacrifice if we get there that we can take care of this and i think will be a much stronger country a generation from now but people have a hard time converting them into long term me just say one other thing about this i see it a look at the growth in the proportion of our government expenditures federal expenditures plus percent of total over the centaur to end the schtick the elements it's addressed

to transfer payments which is so security medicare va on on his now two thirds and you have a fiscal hawks union the defense wasn't and then the interest that promotion expenditures so you have this sizable increase in mandatory that so when you have budget cuts at the discretionary marshall issues around education around institutions like this that comes to end that is why call trading away your future his course in this world economy the best educated comet will be the winner and we've got to make those choices as well so it's huge but it's our problem to solve so there's that's the answer to solve a problem as a nation and focus on your deficit that their education system and the market structure which is our strength of will work to increase wealth you know i think that the press would do like you do with public education

but also put it in terms that the average person understands cause now these trillions this to be a billion center we used to talk about a billion follows a lot of money right when you get down to have in the home mortgage but now it means something that's right special over time like you're welcome i want a fallen into and it has to do with the unemployment rate upstart they're sure of that i actually i think you're on a wonderful track with a one percent inflation fight been going slowly what about the people who are currently unemployed and children are those people who are currently unemployed how do we manage this and i realized i'm asking is it you know the level of the household and yet that's where i experience that absolutely and i was the program the other night until the individual asked me the overture is an eighty percent decline in your income or more and of those are those

are those the tragic events that that there are there are you there are support systems and will they continue i mean that that's that old and it's not to be it's people around me that i'm a critic i'm actually ok there's a lot of people are in new york and then the support systems are there will they continue i don't know will if we if we go if the economy continues to strengthen memory and grow as it has been that number will come down and so i mean i can't walk i cannot provide an immediate solution everyone there are support systems at the state local and federal level of those are important and have continued on and there are jobs that are open were seeing it and the number of job openings are accelerating you're seeing

people begin to enter the temporary market that's the introduction into it and that process continues now the problem is the cuts see how you feel you feel this enormous sympathy for these individuals i certainly you see you want to do something right away you want to increase the money supply because that somehow will get people willing to make more investments and speculate more and therefore the higher but it's not working that way because people are uncertain what that means inflation down the road and the last time when we started this win and one was six and half percent and you have that empathy you bought yourself a ninety percent cure rate so that takes time there's other things around fiscal policy and how you want to address it and why what that means so these are these are what that the congress and the nutritionist debate has forced fiscal policy goes to give time and transitioned to these vigils education mean what i see and your extremely important i understand this the amount of resources going

into our into our writ into our baby boom generation as it enters retirement which i understand is it going there but then what about what about the generations below that how much we can commit so it's it's about allocating scarce resources that's what economics is about and whether we can all have the same high standard of living that we all want and for conduct that is is not necessarily the case and i think i agree with the gentleman who preceded me that somehow the discussion needs to broaden so that that the big picture which you have been and i think you're right i'll somehow also begins to match what's going on around the dinner table that's real tricky because and that now are you really gonna go in because you were in a university setting is only just

saying that i don't think you demand enough economics courses for your undergraduate or graduate because well i mean what's funny what's a fact what of what affects your life i mean certainly signs does it allows technology improvements and so forth but as citizens and to be ill informed citizen requires understanding the issues around economics and choices and alternatives and trade offs and if you don't know those then everyone expects that they can live as they have on borrowed funds and that's how we fit aid consumption boom in the decade of the two thousands from very sophisticated people that were refinancing their home in newton high life when in fact they were putting themselves in jeopardy so yes an informed public is the most important thing to a democracy and it's the most important thing to a successful company yes i this verse about what made common and thank you for your comments about too big to fail should like sing on cnbc

center we can shut down those bigger institutional this after the right question our answer you on that when i briefly let's go back to the actually very first question was posed and michael mccracken as a concert at the reserve bank of st louis i did a story in the october quarter of you talk about disagreements at the fomc and it was looking back at some trends back in the nineteen nineties and looking it was a regional bankers perspective would be of inflation and unemployment affecting their you know their outlook and in short a boat that dissent as a very black and white statement doesn't allow for a lot of grey in that and wondering if you'd be willing to share any type of quality right quality of commentary about the magnitude of the agreement or disagreement within the fomc is now i don't know i don't know in different cities it says the property that's why can't i will tell you this

you can get a pretty good reading outside the authority to read their speeches and there there there are important differences i mean when you read the public speeches of work if you read the german speech that he gave last friday at a very very deliberate speech advocating the possibilities the pen and laying out and if you read my speech that i gave amazon website a couple weeks ago at the national social issues as thomas you see little different not with a lot for acorn and then there are other presidents between that so that the differences are om important and and real and and and that's why you have a committee and people say well do you disagree or do you shouldn't do that in an engine of consensus it confuses the public i said nonsense i wouldn't put on their big degree i was drawn there to serve based on

knowledge experience judgment research until two voices you and to make sure that you is is expressed and judged and held accountable for if i hide in the pack and i'm not doing my duty so i'm very very fast very willing to share with you my views but i i can show my card use keep keep up with it we're going to thank you this oh oh one one over here this quiet voice on the side that you didn't see says one more question so please feel free you mentioned earlier how prop house enables the big banks to borrow at near zero and i'll buy treasuries or three percent were just missed their majorities meanwhile my ninety five year old father whose child of the depression modest income all his life but he saved modest net worth he's giving one percent of the cds at slate he could cover his living expenses out of his cd income and of course in ninety five you shouldn't be

going into a lot of growth stocks i couldn't agree more in alaska but now with meter returns on his cds course he gets into his principal each and every month are affectively people like my ninety five year old father in law are subsidizing the recapitalization of the big banks in washington and i hope they those bankers with their multimillion bonuses appreciate what my ninety five year old father in law is doing for them but what advice do you have for this week now i want to die before them an easel there is the best question of the evening another i have a strong view on that first are out by saying that i am an eighty seven year old mother she calls me up she says tow you can get these interest rates if you give these he says i'm telling your enemy of these interest rates up on the come up with that's all there is to

say that's why and the city but here's the fear the facts you're absolutely right it is ahead of heads shovels several conversations with individuals who have said to me my hands my spouse and i have been very prudent all our life we have we stayed to tie some will get us through the rest of our life we had we paid off our mortgage our houses clear and now i'm getting one percent but it's not just that i'm worried that this inflation will take the rest of the way if it gets out of control now one percent isn't bad but i know these these people been around a while they know where this all leads to five years for them has a legally i am and that's a very legitimate point if we if the center right of the civil rights duty is to make sure we have an informant of sustained

long term stable prices that gives them a fair return for their savings their sacrifice and not have to have them going to speculate for that audience and a fixed income four and one number two they should not be worried about the value of their savings falling because of inflation that's not fair either so those are very legitimate point that i think has to be a recognized by the monetary authority as much as anyone else so it's a very valid point and i think we need to hear more about that as far as it goes because but you know i don't necessarily think that the largest bank should be punished but the fact of the mannerisms euro favors says at any anytime you have a nice price credit or misplaced anything you're favoring someone over

someone else and that's what we're doing with this it needs to change the crisis not even even that even your father my survey my mother would understand it and others have talked and i understand the christ i understand we have one and we we explore is the great depression yes we want you that that's behind us and give a stability and it's a long term and just like the person who's unemployed i feel terrible for but in this case a few more actually more responsibility because they've done everything they should and yet they're going to be sacrificing beyond what they should have been expected to do so strangely important question that's the problem you have to think in macroeconomics you have to think back and then when you know one of the things about water color people think that they can find when i call up i think of that as a as a surgeon's scalpel we can take her this week chris no it's a regimen if it means you have a long term set of goals stable prices and with that the other goals of stable long term interest rates that

all parties have access to under fair more computer mission can can even though when you try and implement and try and simply trying to one thing here it with all their intentions to usually end up the bad outcomes and that's what i think it's important we avoid so we don't have another crisis for five years later you're not what one honor to be here to help he's been listening to come upon a president and ceo of the federal reserve bank of kansas city and he spoke at the university of kansas the leed center on october twenty two thousand ten as part of the anderson chandler lecture series sponsored by the k u school of business it recently announced his upcoming retirement in accordance with the fed's mandatory retirement policy for federal reserve district president's he has served as president of the federal reserve's tenth district since nineteen ninety one he's also the senior member of that federal reserve's federal open market committee achy body with

authority over national monetary policy and kate mcintyre i hope you've enjoyed tonight's katie are present if you have any questions or comments about the program drop me an email my addresses kate mcintyre actually you that the wii u k pr present is a production of kansas public radio at the university of kansas