Posted on 06/10/2005 4:32:57 AM PDT by paudio
Former Fed Chairman Paul Volcker said he doesn't see how the U.S. can keep borrowing and consuming while letting foreign countries do all the producing. It's a recipe for American economic disaster.
On Thursday the Wall Street Journal reported bluntly that "Mr. Volcker thinks a crisis is likely."
Volcker believes that investor confidence could fade "at some point," he said, with "damaging volatility in both exchange markets and interest rates."
He believes a serious economic crisis is likely unavoidable as the U.S. economy is struggling with what Volcker sees as a hopelessly unsustainable relationship with the rest of the world.
(Excerpt) Read more at newsmax.com ...
Volcker has as much crediblity as one will give him. Being old enough to remember when he was chairman, I now find it hard to consider him particularly insightful (at the time, he did make perform as a functional place-holder in the best country-club RINO sort of way). Considering his performance in OFF, I now view him far less sanguinely, and tend to think that steampower's assessment may be correct.
LOL...and we are supposed to believe this guy, who didn't see anything wrong with Annan's role in the Oil for Food scandal? Go home, Volcker. You are just another old sell-out, who still wants MSM interviews.
Without a doubt. Also in 1999, and the current bubbles in the real estate market. The inflation in the 1970's would also be a very good example.
Volcker is is absolutely correct. All one has to do is read up on the articles over at financialsense.com and prudentbearfund.com and you will see the gathering economic storm clouds quite clearly.
I think Volcker is talking as much about consumer debt as government debt. It is a concern. We put more money in the economy by borrowing and then send it overseas to buy foreign products.
Think about this situation in the exreme. Imagine an economy which consists entirely of money which is created by deficit spending. All of that money is then converted into foreign currency and used to purchase foreign goods. That money wouldn't be worth very much in exchange, would it? The only thing keeping us out of trouble is that our economy is growing fast enough to keep us out of trouble - for now.
It was necessarily strong medicine.
Paul Adolph Volcker (born September 5, 1927), economist, is best-known as the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan (from August 1979 to August 1987). Educated at Princeton, Harvard and the London School of Economics, from 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions surrounding the US decision to suspend gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system. In general he acted as a moderating influence on policy, advocating the pursuit of an international solution to monetary problems. After leaving the US Treasury, he became president of the New York Federal Reserve Bank from 1975 to 1979.
Volcker's Fed is credited with ending the United States' inflation crisis of the early 1980s. They achieved this by constricting the money supply through a sharp increase in interest rates. By 1985, inflation was considerably lowered from 9 percent in 1980 to 3.2 percent in 1983. This disinflation was predictably accompanied by a decrease in GDP growth (i.e. a recession), and by an increase in unemployment, which rose to the highest levels since World War II. Both GDP and unemployment returned to normal levels when the inflation problem had been solved and interest rates were lowered, however.
That is debatable. Raising rates was necessary, but he went too high and far too long.
"The standard of living of the average American has to decline.... I don't think you can escape that." - Paul Volcker, 1979
>>Can't say I disagree.
I agree with that.
He sure did. The Alchemy of Finance
Current Chairman Alan Greenspan disagrees.
Agreed. The Fed has little or no control over long term interest rates. Long term rates are governed by inflation, which in turn is heavily influenced by growth in money supply. Now money supply can be reduced to some degree by increasing short term interest rates. But short term rates have to really go up to lower money supply, which then can lower inflation, which then can lower long term interst rates.
Reagan's deficit spending was a great boost to economic growth, but it did nothing to lower rates and curb inflation.
Well, I think that Americans can keep borrowing as long as interest rates remain low. When they go up, the borrowing will cease. Also, money will begin to move from the stock market to the bond market. As capital becomes more difficult to borrow, one can imagine that the job market would be hurt.
Meanwhile, as the state takes increased responsibility for all aspects of our lives, while also fighting a war on terror, spending is at an all time high. To acquire the funds, the fed taxes us at near an all time high on the one hand, on the other, it borrows the shortfall, also from us.
The whole situation does seem kind of negative. I could wish for the state to play a much smaller part of life.
"he doesn't see how the U.S. can keep borrowing and consuming while letting foreign countries do all the producing. It's a recipe for American economic disaster."
Tonight will be dark out with the chance of the sun coming up tomorrow.
duh.
Well, as the architect of the stock and real estate bubbles, he would, wouldn't he? ;)
I would say "duh" too if everyone from Ben Bernanke to Larry Kudlow weren't loudly insisting that the sun will keep shining no matter how late it gets. ;)
Volcker raised rates because Reagan wanted to strengthen the dollar. The devaluation of the dollar in the early 1970's was the real catalyst behind all the inflation we had (see the Bretton Woods accord). Other factors were panic by politicians which led to price controls and over regulation of the oil market.
The real long term cure for inflation was the economic growth that resulted from Reagan's policies. That's right, economic growth is deflationary, contrary to what the central bank and politicians would have you believe. Your belief is necessary for you to allow them to micromanage the economy.
I to agree this is a train wreck waiting to happen.
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