Topeka The president of the Federal Reserve bank in Kansas City, Mo., said Monday the United States must make significant reforms, including reviving the manufacturing sector, in order to restore confidence in the economy.
Thomas H. Hoenig made his remarks to members of Kansas Gov. Sam Brownback’s administration, bankers and legislators in Topeka.
Hoenig said decades of lost manufacturing jobs, rising debt and long-term obligations have put the nation’s economy and future at risk. He said the United States needs to create a climate to promote manufacturing more goods that the world demands.
“You don’t create jobs, you create an environment to create jobs,” Hoenig said.
He said the United States had become too dependent on consumer spending to drive growth, but that has slowed as consumer debt increases and savings rates decline to near zero, eliminating any ability to invest capital.
Hoenig said Washington policies would not revive the economy alone, such as providing short-term stimulus packages or adjusting monetary policies with increased regulations.
“Congress can’t solve this problem. This is a societal problem,” he said. “If we continue to borrow more than we can afford then all the wealth is paid in interest.”
Hoenig has headed the Kansas City regional bank since 1991. In recent years, Hoenig has opposed the Federal Reserve’s efforts to boost the economy through an extended period of low interest rates and the purchase of billions of dollars in Treasury securities, a policy known as quantitative easing.
He said further Fed policies could kindle future inflation and put additional pressures on an economy struggling to find its footing.
“Inflation is a tax on the American people,” Hoenig said Monday.
He said companies that do have capital they would be willing to invest are holding off because of the regulatory uncertainty as Washington prepares to write new rules for doing business.
“Uncertainty kills growth. It kills investment. We need to build confidence in this country,” Hoenig said.
Brownback hosted Hoenig as part of the Republican governor’s efforts to improve the Kansas economy by lowering tax rates and reducing regulations.
“Kansas has high tax rates, relative to our region, so that’s a problem. To our advantage is our educational system and we need to invest in that, as well,” Brownback said.
Kansas officials also received data compiled by Chad Wilkerson, a Federal Reserve economist at the Oklahoma City, Okla., branch, who showed how the state compared to the other 49 in the flow of capital for investment.
The report showed that Kansas ranked in the lower to middle 30s over the past decades in attracting investment capital. Those states that were heavy in oil and gas exploration attracted the largest amounts of capital. Kansas was seeing investment gains in professional and technical services, as well as agriculture and food processing when comparing the state’s domestic product with income growth.
Brownback said a group led by Revenue Secretary Nick Jordan continued to develop a proposal for lowering state tax rates while broadening the base. In the past, the governor has suggested that Kansas reduce or eliminate the income tax to become more competitive.
The governor said his administration soon would be releasing a list of regulations and rules that would be repealed, part of an initiative he began this spring to identify burdens to economic growth. He didn’t offer any specifics about what regulations would be on that list.