Former Fed Chairman issues dire warning on economy

Telegraph

Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasise after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.

"What this crisis reveals is a broken financial system like no other in my lifetime," he told a conference at Lombard Street Research in London.

"Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial."

Mr Volcker was chairman of the Federal Reserve from 1979-1987 under Presidents Carter and Reagan. He received degrees in economics from Princeton and Harvard and continued his education at the London School of Economics.

The most telling statement to me is his assertion that "normal monetary policy is not able to get money flowing;" nearly everything attempted in the US thus far, from lowering interest rates to liquidity injections/quantitative easing, are hallmarks of antideflationary monetary policy.

If these measures aren't working - and it seems pretty obvious that they aren't - what will?

Originally posted by anachryon
If these measures aren't working - and it seems pretty obvious that they aren't - what will?

Beats me what will end up working but the next step is a major devaluation of the currency. I give it no more than about six months before this is tried.

While everybody is running around screaming about price deflation (while governments are printing money like there's no tomorrow :shk: ) they will hit us upside the head with a devaluation. I suspect it will be a concerted move among many G8 nations.

We got nothing but wishy-washy "feel good" statements about working hard on the problem out of that G20 meeting this weekend. The situation is not worthy of another meeting for six months? Yeah right.

I'd like to know exactly what was discussed at that meeting. You can bet big decisions were made. Decisions big enough to remain silent about with "dire warnings" coming from people who will be heard and can pass the message along if you know what to look for IMO. Volcker is one of those people.
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Originally posted by Gools
Beats me what will end up working but the next step is a major devaluation of the currency. I give it no more than about six months before this is tried.

Will a major devaluation be the death knell for the dollar-as-world currency? For one, won't this all but guarantee the end of oil being traded in dollars?

reply to post by Vault-D


Those are two very different questions. The petrodollar cycle has been having conniptions for several years now and many countries have already moved away from the dollar for oil transactions. (not to mention that Iran just announced the conversion of it's currency reserves into gold - not sure bout the validity of those stories but there you have it) The petrodollar system is already dead IMO.

As for the US currency being used as a global reserve currency I think it's days are numbered. Anybody with two brain cells to spark together should be moving to a basket of currencies IMO.

Eric Janszen over at iTulip makes a good case that we will eventually have a Bretton Woods III with a gold standard for international transactions (not the same as a gold backed currency within a country). The US has had a free ride for the last 37 years when they defaulted on their debts by closing the gold window.

We've now come full circle where an international gold standard will likely bee needed to stabilize things. But not before major currency devaluations and much more pain. If you search out my posts you'll see that I've been saying 2009 is going to be the year of pain for some time now.
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Devaluing the dollar will not lead to expanded economic activity or solve the world's problems. The elite are simply victims of themselves. They took everyones money and now their world is imploding on them as well. The only way out of this problem is to put money in the peoples hands. We need another stimulus package and we also need to make mortgages affordable.

The way to make mortgages affordable is to have the goverment buy every primary mortgage outstanding in the US. That includes everything that has been packaged. They should be able to buy the whole jit and kaboodle for 90 cents on the dollar. Then they turn around and automatically refinance everyone at 90% of appraised value and at 4% interest. This means that many troubled homewowners get a 40-50% cut in their mortgage payment. Over 30 years they would pay back 170 cents on the dollar allowing the program to be run at no taxpayer expense. New homeowners also go through the goverment and get the 4% rate. Home ownership would once again be an attainable American dream and most of the problems in the financial sector would not be problems any longer.

Banks would suffer through lost future biz but they are the ones who caused this. Everyone else wins.

Originally posted by Gools
Anybody with two brain cells to spark together should be moving to a basket of currencies IMO.

True, diversification is the way to go. Still, I can't help but wonder how that fits into a central banking scheme/schematic. I suppose if everyone grows comfortable with global diversification, it won't be long before they want some kind of more simply representation. A fiat currency formed from a conglomeration of many fiat currencies? A global currency index fund? That's probably treading into another topic, though.

I'll check out the link, thanks!

reply to post by Gools


Totally agree my friend. That is going to be the end game a devaluation of our currency. Where it stands now we will never be able to pay off the 60 trillion dollars in debt we have. This was all a set up in my opinion to get a new currency. Gold will be jacked up. Im guessing anywhere between $5k to $25k when this is all said and done. Im guessing 10 to 1 on the new currency. 10 new currency to 1 old.