Former KC Fed President warns growing federal debt threatens economy

St. Joseph Post

A warning about the growing national debt comes from the former president of the Kansas City Federal Reserve during the St. Joseph Chamber of Commerce Economic Development Summit.

Thomas Hoenig is now with George Mason University of Virginia as a Distinguished Senior at the Mercatus Center.

Hoenig honed in on the growing federal debt during his address to the St. Joseph Chamber of Commerce Economic Development Summit on the Missouri Western State University campus Wednesday morning.

"It is large and increasing at a fairly rapid rate," Hoenig tells reporters afterward, suggesting it hasn't emerged as an issue in the presidential race or any campaign for that matter, because it is an uncomfortable subject. "Whether you are a Democrat or a Republican, you've had a role in creating that debt. Therefore, it's uncomfortable and I'm not sure people want to hear about it. It's not something that is a topic of conversation among the public at this point. In past periods, it has been."

The federal debt has been growing the past few years, but response to the COVID-19 pandemic accelerated that growth. Hoenig estimates the federal government added an additional $7 trillion to the debt through its response and economic stimulus efforts the past two years. The national debt now stands at $35 trillion dollars. Hoenig points out the Congressional Budget Office estimates it will top $50 trillion in the not-too-distant future.

Hoenig worked at the Federal Reserve for 38 years. He was president in Kansas City during the banking crisis of 2008 and 2009 that spawned the Great Recession. Hoenig served as a member of the Fed's Open Market Committee from 1991 to 2011, the committee that decides monetary policy, including interest rates.

Hoenig is critical of the Fed, expressing disappointed with how the Federal Reserve has responded.

"Their unwillingness to tell Congress that this debt is going to be increasingly a problem and that they can't fund all that debt," Hoenig says. "They can't buy the debt from the government and maintain a stable price environment."

Hoenig says the country won't take the debt seriously unless the country's leadership acknowledges that it is a problem.

"It will take people being willing to listen to that and then once you do that then Congress will listen," according to Hoenig. "And the next time we have a bipartisan effort to address the debt we'll be more successful than we were last time."

Two times the country has dealt with the national debt under similar circumstances. Hoenig notes the country greatly reduced the debt coming out of World War II. A Republican Congress worked with President Bill Clinton, a Democrat, in the 1990s to not just reduce the debt, but create a surplus.

As for those who dismiss the threat, arguing the economy of the United States is so large and robust, it can handle such a large debt, Hoenig makes some concessions.

"It can handle it temporarily, but it can't handle this kind of debt growth indefinitely," Hoenig insists.

Hoenig says, eventually, a debt this large impedes economic growth, which hits the pocketbooks of average Americans, hampering household and individual income growth.

Hoenig sees shared sacrifice as the only way to effectively deal with the national debt.

"What I mean by that is, everything has to be up for discussion, not just Social Security, not just Medicare, not just Defense, not just infrastructure," Hoenig says. "Everything has to be thought about. And we have to prioritize."

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