such as extreme weather in parts of the world – and on the demand side, including the well - documented, rapidly growing food demands of emerging economies. in addition to anticipated strong future demand for agricultural commodities, there is another factor affecting these prices : exceptionally low interest rates. as a bank regulator in the 1980s, responsible for financial institutions in nebraska, kansas, oklahoma, missouri, wyoming, colorado and new mexico, i witnessed the devastating effects of easy credit and leverage in agriculture, real estate and energy. we closed or assisted nearly 350 banks in our region alone. with interest rates near zero and with additional massive liquidity poured into our economy, all interest rates are affected. therefore, asset values of every kind are also being affected, bis central bankers ’ speeches including land values in iowa. loans for land are available at rates well below historical levels – in some instances, 400 basis points below historical averages. the effect on land assets, like any asset, is to artificially boost its value. and there is ample experience that tells us that if rates were to rise quickly, this would affect world demand for commodities and raise the cost of capital on land almost instantly. when – not if – the adjustment occurs, we will see a dramatic drop in values. in the meantime, if operators and speculators have incurred large amounts of debt, then a new crisis will emerge. finally, we know that a crisis can affect more than one segment of the economy. it nearly always affects the broad economy and employment. shortcuts don ’ t work. we need to focus on the real economy. we need to focus on real reform. conclusion my point today is simply that as powerful as monetary policy is, it sometimes is not enough. it cannot ensure an economy that balances its savings and investing needs. it by itself cannot correct our current account deficit or enhance savings and investment. these will require important changes in our real economy. providing the right environment in which government can play its role in supporting business and the consumer to save, invest, manufacture and service national and global needs in the end will create real income and wealth. we need to focus on long - term, stable monetary policy and fiscal policy goals that support these broader goals. having seen the effects of financial crisis after financial crisis as shortterm policies beget short - term policies, we should know that an ever - present short - run focus, even if well intentioned, is the road to ruin. bis central bankers ’ speeches

thomas m hoenig : rebalancing toward sustainable growth speech by mr thomas m hoenig, president and chief executive officer of the federal reserve bank of kansas city, before the rotary club of des moines and the greater des moines partnership, des moines, iowa, 30 june 2011. * * * the views expressed by the author are his own and do not necessarily reflect those of the federal reserve system, its governors, officers or representatives. introduction the u. s. economic recovery is under way, but it remains more uncertain and volatile than anyone would like. some believe that the federal reserve can speed up the recovery by keeping the federal funds rate near zero, where it has been for nearly two - and - a - half years, and by promising to keep it there for an extended period. if i judged – or if evidence suggested – that a zero rate would solve our country ’ s unemployment problem or speed up the recovery without causing other adverse consequences, i would support it. however, monetary policy is not a tool that can solve every problem. in today ’ s remarks, i will outline my current views on the economy, and suggest what alternative options and policies our leaders might consider as we search for ways to build a stronger, more resilient economy. u. s. economic conditions first, it is a testament to the u. s. economic system that even as this nation carries a heavy public and private debt burden, the economy is completing its second year in recovery. the level of activity, as measured by gdp, has now surpassed its pre - recession peak after growing at a nearly 3 - percent pace last year. however, i am concerned that in working to offset the effects of this devastating crisis and to restore the economy to health, an extended zero - interest - rate policy is producing new sources of fragility that we need to be aware of and allow for in our future policy choices. governments, businesses and consumers have made financial choices and allocated resources with an understanding that a zero - interest - rate policy will remain in place indefinitely. the longer we leave interest rates at zero, the more asset values will be defined by these low rates and the greater the negative impact will be once the inevitable move up in rates begins. complicating the fragility around monetary policy, fiscal policy as a pro - growth policy instrument also appears to be approaching its limit. the government ’ s stimulus efforts to support the economy, along with lower tax revenues, have resulted in