Quantitative Displeasing

Not everyone was thrilled with Wednesday's Quantitative Easing announcement from the Fed.

Paul Vigna discusses how the lone dissenting hawk on the Federal Reserve Board, Thomas Hoenig, views the policy:

Thomas Hoenig, the head of the Kansas City Fed and the only dissenter on the FOMC to Wednesday's decision to flood the marketplace with $600 billion worth of new liquidity (quite possibly because he's the only one who didn't hit the liquidity hash pipe on his way in the building,) has some serious misgivings about the wisdom of pumping asset bubbles.

What Hoenig's getting at there is a misallocation of resources that sends “hot” money into risky assets, building up a bubble that eventually bursts and unleashes a torrent of pain on the populace. By this point, after the housing bubble, credit crisis and dot-com bubble, that's become a familiar exercise, yet Hoenig may be the only guy currentl with a vote on the FOMC who sees the downside clearly (albeit some other dissenters within the Fed will get the vote next year, although they'll still be in the minority.) That's a pity for the rest of us.

Paul and Mr. Hoenig are absolutely correct.  I have been calling for a 1% rate hike  as I'm getting tired of seeing money printed just so that Russian oligarchs and Brazilian mining execs can buy 3rd and 4th homes.  Food costs are beginning to rise and emerging countries are begging us in the New York Times to staunch the flow of hot cash.

Unemployment after all this printing and pumping?  Still 9.6%.

Sources:

Hoenig, the Dissenter's Take on QE2 (Market Talk)

Emerging-Market Countries Criticize Fed Decision (NYT)