Posted on 01/17/2008 2:23:20 PM PST by Notary Sojac
WASHINGTON (Reuters) - Former Federal Reserve Chairman Paul Volcker thinks the U.S. central bank is to blame for allowing bubbles to inflate asset markets, and says that current Fed chief Ben Bernanke is in a tough spot.
"I think Bernanke is in a very difficult situation," Volcker told the New York Times Magazine for a story it will run on Sunday. The Times made the text available to the media in advance of publication.
"Too many bubbles have been going on for too long ... The Fed is not really in control of the situation," the Times quoted Volcker as saying, in clear criticism of both Bernanke and his predecessor Alan Greenspan.
Volcker chaired the Fed between 1979 until 1987, when he handed over the reins to Greenspan.
A slumping U.S. housing market following years of rampant price rises has sparked a global credit crunch and could tip the economy into a recession.
Critics blame the ultra-low interest rate policies of the final Greenspan years -- when the U.S. central bank steered overnight federal funds rates to 1 percent and held them there for a prolonged period of time -- for fueling the housing bubble.
Bernanke, who was also a Fed board governor between 2002 and 2005, inherited the problem to an extent.
Greenspan has long been criticized for being very aggressive in cutting interest rates when growth was threatened, but slower to raise them when it picked up and the risks flipped toward higher inflation.
Volcker, a towering man known widely as 'Tall Paul', is credited with breaking the back of rampant 1970s inflation by aggressively tightening monetary policy, for which he was greatly criticized in some quarters at the time.
"It's no fun raising interest rates," Volcker said.
Former FED Chairman needs to ‘stick a sock in it’. He had his chance and it’s someone else’s chance ... to screw it up now.
I guess Arthur Burns is going to chime in soon too.
Volker is right. He did a good job. But Greenspan—who certainly knew better—refused to do the traditional job of taking the punch bowl away when the party got too rowdy.
The first President Bush appointed Greenspan, but most of his sins were committed during his long service under clinton.
I suspect that the clintons made him some sort of offer he couldn’t refuse, and he bowed down to political pressure. Clinton, of course, was known as a financial genius among the leftists, because he presided over these bubbles.
President Bush did not cause this situation, but he has done nothing to fix it. I’m not sure that he could, without a major recession, which would have been one more instance of the Republicans doing the job Democrats refuse to do, and then getting blamed for it.
No, the tax increases and spending cuts that Clinton instituted were a result of Greenspan threatening to raise interest rates and kill off the fragile recovery if the Government didn’t get the deficit under control.
Unfortunately, Greenspan didn’t hold GWB to the same standards of Fiscal Responsibility.
Bubble economics seems like a fairly bipartisan project.
Greenspan, seems to have been both a little late to the party, and to have kept partying too long, when it was time to lower rates, and later, when it was time to start raising them again.
I recall Greenspan being criticised in 90/91/92 for keeping rates too high, exacerbating the 90/91 recession.
Shut up and go back to your shuffleboard game Paul.
It was Reagan's growth policies that broke the back of inflation.
The Fed goes to extremes in both directions, raising rates too high and lowering them too low. But the mistakes at the Fed won't end until they give up their theory that economic growth and low unemployment cause inflation.
And now Greenspan goes to work for a hedge fund that’s making a killing off of the housing mess that he created. hmmm.
http://news.independent.co.uk/business/news/article3342208.ece
Reagan initially appointed Greenspan.
Wasn’t it Volcker who gave the UN and Kofi a free pass for their oil for food corruption?
It was not nearly as tough a report as I would have liked. Does not mean Volcker is wrong on monetary policy.
~~E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."
~~Irving Fisher PhD, leading U.S. economist , New York Times, October 17, 1929
"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market and so check the movement."
~~Harvard Economic Society, October 19, 1929
"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years."
~~R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
“Several brokerage houses tumbled; blue-sky investment companies formed during the happy bull market days went to smash, disclosing miserable tales of rascality; over a thousand banks caved in during 1930, as a result of marking down both of real estate and of securities; and in December occurred the largest bank failure in American financial history, the fall of the ill-named Bank of the United States in New York.”
~~"Only Yesterday: An Informal History of the 1920’s" by Fredrick Lewis Allen
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
~~Ludwig von Mises
~~Alan Greenspan, May 21, 2006
Thanks for posting this.
St. Paul the Tall has it right again. Greenspan is an idiot, and his tenure at the Fed was a disaster.
From the first, he has caused stock market crashes (1987), real estate crashes (early 1990s), Internet bubbles (2000), and now the excesses of the subprime lending situation.
It’s about time for the revisionistas to get after his worthless white ass.
He left Bernanke with a mess that will take decades to clean up.
My prescription? Get out of the Fed Funds market for starters.
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