SANTA FE, N.M. -- Fed dissenter Thomas Hoenig argued in a speech Wednesday that holding interest rates at artificially low levels over extended periods encourages "bubbles."

"I make no pretense that I, or anyone, can reliably indentify and 'prick' an economic bubble in a timely fashion, the Kansas City Fed president said. "However, I am confident that holding rates down at artificially low levels over extended periods encourages bubbles, because it encourages debt over equity and consumption over savings."

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City

Hoenig also called for an increase in the federal funds rate to 1%, saying it would still be a "highly accomodative policy."

"I would view a move to 1 percent as simply a continuation of our strategy to remove measures that were originally implemented in response to the intensification of the financial crisis that erupted in the fall of 2008," Hoenig said in his prepared remarks.

Hoenig said that "thanks to the combination of near-zero short-term interest rates and the Federal Reserve's large-scale purchases of mortgage-backed securities, investors are flush with cash.

"Our contacts within the Tenth Federal Reserve District have shared anecdotal information suggesting that operators and investors in the Midwest are buying farmland and bidding up the price. ... "We've seen this in the agricultural regions of our District in the past, notably in the run-up to the banking crisis of the 1980s."

Hoenig concluded: "I am convinced that the time is right to put the market on notice that it must again manage its risk, be accountable for its actions, and cease it reliance on assurances that the Federal Reserve, not they, will manage the risks they must deal with in a market economy."

This article was written by a staff member of TheStreet.com.