Paul Volcker: The Lion Lets Loose

[Crewleader]

Charlie Rose talks financial reform with former Federal Reserve Chairman Paul Volcker

By Charlie Rose

http://www.businessweek.com/magazine/content/10_02/b4162011026995.htm?source=patrick.net

[westerebus]

1. Straight up, no chaser. n/t

[virgogal]

2. Incredible insomnia cure.

[Warpy]

3. He's still underplaying the effect of the wealth shift away from the

worker/consumer class and to the ultra rich. The wealthy couldn't be bothered by risking their money investing in the US. While he's correct that we need to rebuild our industry in a smarter manner, he's going to have to come up with a way to afford it and he can't, not without near confiscatory taxes on the class that has benefited so much from 30 years of conservative economic mismanagement.

The wealthy would rather invest overseas or create the next big bubble, sure things as opposed to risky investment in the US rebuilding industry here.

[roamer65]

4. The man who singlehandedly started the destruction...

of America's industrial base. I wish he'd just retire and go away.

[westerebus]

5. Please expand that thought?

Just how did Volker start the destruction of the industrial base in this country?

[elleng]

6. Thanks for asking! Same question here.

[westerebus]

7. It's news to me, but I'm willing to learn. n/t

[roamer65]

8. 21% interest rates in 1980-1981.

The second dip of the 1980-1982 double-dip recession was due to Volcker's sky-high interest rates. Appointment of Volcker to the Fed chair was one of Carter's capitulations to the right. The midwestern "Rust Belt" is the legacy of Paul Volcker. By shoving interest rates to 21%, the dollar's value surged against other currencies...primarily the Japanese Yen. American jobs began to flow to Japan and the rest of Asia.

Ronnie Raygun and Volcker were buddies enough that Raygun re-nominated him for a second term. Being a Raygun suckass is enough to make me dislike him.

I would rather have 10% inflation and plenty of jobs, than 2% inflation and no jobs.

[westerebus]

10. I think Regan re-appointed him to keep the stock market from going into a death watch.

As I recall, there were job losses starting with Nixon and that hasn't stopped under any administration save Clinton. What was made in the North east went south. What was made in the south went west. What went west didn't stop till it hit Asia.

That said, it was the balancing of the budget under opposing parties that got the economy back up and running. After the corporate money pushed into the China market. That's worked well. (sarcasm intended) The supply siders under St.Raygun destroyed the manufacturing base with off shoring jobs and anti union policies.

Corporations had decided China was to be the next big market. And Congress gave them their blessing with tax cuts and deregulation.

Even St. Ronnie raised taxes in his second term. Bush1 did the same thing and paid the price. Mess with capital gains and see what happens. Its the economy stupid! Which opened the door for Clinton. Hello NAFTA.

I do remember the massive job cuts across the rust belt. I also remember waiting in line to buy gas on odd days because of rationing. I remember being unemployed too. I remember when the Unemployment Claims Office denying every fifth person's claim one week. Headlines read: Unemployment Down! Recovery Started!

And that all time classic, its a recession if you have a job, its a depression if you don't.

Cheap Japanese cars getting 25mpg were the hottest thing on the market. Or you could buy an exploding Pinto. Seat belts! We don't need no stinking seat belts.

The Chrysler bail out? That worked out well.

Watching the stock market back then, you could see the rally on Monday and the sell off on Friday.

Had Volker not done what he did to stop inflation, I don't know how things would have worked out.

With interest rates as low as they were in the past decade, did manufacturing come back to the rust belt?

Do we have an energy policy? Clean fuel? Modern infrastructure? Mass transit? Affordable health care? A balanced budget? A balanced trade policy? Corporate oversight? Investment bank regulation?

Do we actually have a Democracy?

[girl gone mad]

14. I think that analysis is a bit shallow.

Volcker was always a Democrat. Reagan kept him on for a while because Volcker had been very successful at getting the nation out of a dangerous stagflationary spiral. If you will recall, prices of energy and imported necessities were soaring while wages and domestic business earnings were declining, a recipe for absolute disaster. Inflation is not always a friend of labor, contrary to your last line.

It's also worth noting that Reagan dumped Volcker because he was a fierce opponent of Reagan's de-regulatory crusade.

Inflation has been a tool of the wealthy for the past two decades. Higher interest rates would have benefited most Americans at several points, but rates were kept artificially low so that those at the top could continue to rake in vast amounts of money by leveraging various speculative bubbles, rather than having to earn it the old fashioned way.

[damyank913]

17. Inflation is no tool

How does the bank benefit if they give me a 30yr mortgage at and I pay them back with money that's worth less.

[damyank913]

20. The rust belt killed itself.

Volcker had to bust inflation. Think about it-21%!!!!!!!! Stagflation was a new development to economists. They didn't know it was possible to have inflation w/o 100% employment. There is a psychological component to inflation that can make it feed itself; and it had to be broken. He did the right thing and unfortunately Reagan was the biggest Beneficiary.

[damyank913]

21. With the help of unfair trade practices

(sorry I needed to ammend that last post.)

[bemildred]

16. Well, to be fair, it really all started with Vietnam.

The imperial overstretch and all that. He was part of the decision not to deal with that, to continue on and not deal with it, but was still in favor of defending the integrity of the currency, such as it was, and he had and has more integrity than any of the weasels we have in charge these days.

[damyank913]

18. LBJ's policies broke the bank.

Kennedy had the economy going in the right direction. Unlike Kennedy, LBJ felt that economics was a hoodoo science for eggheads. Although there were many components of LBJ's Great Society that needed addressing, he provided no way to finance these lofty goals. And then the war. Add to that the supply shock of OPEC and the stage was set.

[bemildred]

22. Yeah, that was it, that and when they took Carter down and started going for broke. nt

[wuvuj]

9. Double dip baked in the cake?

http://www.roubini.com/us-monitor/258179/double_dip_recession_and_the_perverse_math_of_gdp_reporting

Translation: it’s irrelevant what percentage of the stimulus spending has already been spent. That is not how GDP is measured. It’s the quarter-on-quarter change in GDP that is relevant – and government stimulus subtracts from the change in GDP starting in Q3 2010 (see column two above).

This is why President Obama’s explanation for his recent turn toward deficit hawk is misguided. He said he wants to avoid a double dip recession, but clearly this is baked into the cake unless he increases spending and/or lowers taxes. What’s more is fiscal year 2011 for states and municipalities will go into effect at just that point – and with a huge deficit looming, that translates into another massive reduction in spending or a huge increase in taxes or both.

If the recent spectacle of government handouts to big Pharma and the banks via GSE mortgage market intervention give you that warm and fuzzy feeling about the efficacy of stimulus, then you’ll want to see some serious additional stimulus to prevent this coming train wreck. Otherwise, brace yourself for serious economic problems in the U.S. starting in the second-half of 2010 – just in time for the mid-term elections. And given already high levels of unemployment and fragile asset markets, expect serious carnage in both the real and financial economies.

[westerebus]

11. You obviously need re-education.

Report to pom-pom class 101 and no cookies for you either. :sarcasm:

[mackerel]

12. The most ineffective and least foreward thinking economists

seem to make it to government. Volcker, Greenspan, Bernanke all reactionists not a proactionist in the lot. Watch they'll give it to Geitner in a few years - LOL.

[westerebus]

13. Summer's is next in line for the Throne. Maybe.

Then again GS may have someone else in mind. I tend to think FED Chairmen are like firemen. You rarely see them unless there's something burning, crushed, mangled, or in need of rescuing.

And if you do see them and something is not burning, you better hope it's a parade.

[damyank913]

19. I agree but I don't know what choices he has.

I see another Govt stimulus in th cards. Most of the states are using that money to continue providing services and not to commence a huge infrastructure program. I see bad ju-ju ahead for Obama. If he doesn't provide the stimulus, unemployment will worsen as municipalities start laying off ppl. If he does, the repubs will have a field day next election. But if he does AND the jobs numbers get better(significantly better), he has a chance to turn this ship around. Either way, when inflation finally kicks in, the pendulum swings and the dems will be ousted in 2016.

[Crewleader]

15. The President needs to get rid of Summers and Geithner

and Barney Frank needs to go! He says 3 to 5 years with regulating banks to calm Wall Street.
His actions alone with Fannie and Feddie should say bye bye to him.



Friends today was long overdue...let's hope our President follows through.

[westerebus]

23. IF

The Administration were to bring back Volker to the FED, I would speculate they have done a deal with China on the currency peg. Or a trade off on the debt they hold.

The other possibility is to give him Treasury and the bank's sense of self preservation will accelerate to push the string once again. The percolating of selling in the market is their version of a double dare. The Administration appears weak to them.

The banks can push the market in any direction they choose. As long as the FED has their back. Provided they keep to the deal they made with Paulson and Bernanke. Proxy for the FED/Treasury in the market and keep those profits, buy treasuries with the FED reserves that covers their books. Unless, the Fed is actually dark pooling which means it's all over anyway.

If the bankers want to renege on the deal, they do get a little touchy about who actually runs things, where does that leave the Administration? If the bank's sense the Administration is unable to deliver due to its' fear of failure, that's blood in the water.

If there really is enough will to push the Wall Street/K Street/Banksters into a back alley fight, I'd expect to see the sudden passing of one of them under tragic circumstances.

Stranger things have happened. Suicide in a park?