Wednesday, November 26, 2008

Volker's remarks from a speech last week at Drew University

Volker's comments and my remarks in blue.

Ex-Fed chief Volcker at Drew: 'There is no magic bullet' for economy
Obama adviser says a plan is needed at start of presidency
by laura bruno • daily record • November 21, 2008

"No magic bullet" comment means that he does not believe in the Keynesian approach that utilizes large doses of government spending to restore aggregate demand.

MADISON -- Former Federal Reserve Chairman Paul Volcker, one of President-elect Barack Obama's top financial advisors, didn't let slip any of his secret advice Thursday when he addressed a room of some 40 Drew University students, professors and trustees.

He did tell them that while it's easy to get cynical and discouraged about public service after nearly a decade in Washington, (he served from 1979 to 1987), he said there is a chance that under Obama some of the excitement that was felt in the 1960's with President John F. Kennedy could see a resurgence.

Kennedy's chief economic advisor was John Kenneth Galbraith--a fervent Keynesian. Quite different from the team that Obama has assembled. There is not one Keynesian on it, so it's weird that Volker does not recognize that distinction.

He also said Obama needs to be prepared with an economic plan on inauguration day or the day after, because with General Motors and the other American auto makers on the brink of bankruptcy, Obama may have his hand forced before he has a chance to make his own choices, Volcker said.

"Forced" to do what? Let them fail? Bail them out? No specifics.

Volcker answered questions posed by former New Jersey Gov. Brendan Byrne, a fellow 1949 Princeton University graduate, who is teaching a course on politics and the media at Drew.

When Byrne asked what options there are for solving the economic crisis, Volcker had a short answer:

"Time," he said. "There is no magic bullet."

Again, this comment displays a complete mistrust of the Keynesian approach. Implies shared suffering and sacrifice by the electorate. A muddling through at best.

Sharing the stage with Volcker was former New Jersey Gov. Thomas Kean.

Volcker joked that his true mission at Drew was to offer Kean the Secretary of Treasury position on behalf of the President-elect.

Volcker has been on the short list of possible candidates for the position.

In dishing about the press, Volcker was kinder than Kean, who said the press acts in a "herd mentality" on a major story and most reporting on a complicated story is not sensible.

On this characterization of the press, Gov Kean is absolutely correct. As an aside, I lived in Jersey when Kean was governor and he was an excellent chief executive!

In contrast, Volcker said today's financial press is far more sophisticated than it was 20 years ago.

Is he joking? I find this remark to be incredible. The financial press is still pretty much clueless; views everything through the paradigm of a gold standard. But then again, so does Volker, so you can see why he lauds them.

"I have a feeling the press hasn't done such a bad job," Volcker said of the media's reporting on the financial crisis. "It's a pretty complicated story to tell."

"Press hasn't done a bad job." Unreal! No understanding of gov't finance, monetary operations, floating exchange rates, promoting the likes of Peter Schiff, Jim Rogers. Little or no perspective when it comes to economic data, deficits, debt, etc. Incessant cheerleading, entrenched ideology. Sheesh, what's Volker smoking?

And Volcker acknowledged that public relations can have a powerful effect on the powers of a new president.

"It's not all p.r., but you have to get it pretty right otherwise you can't do what you want to do."

What is he saying? That the press has more power than the policymakers? More power than the Fed? More power than the Federal Gov't? Should we pander to what the press thinks we should do? Is THAT leadership???


googleheim said...

Mr Norman

Can you please entertain my 20/20 hindsight and tell what effect the following would have had and if it would have been positive :

1. China floated it's currency 3 years ago on the exchange so it could appreciate as such ?

2. Extra Special taxes on excessive leveraged instruments so that gov would have had some insight to what was going on ?

3. Boone Pickens' plan implemented 3 years ago such that 30% of US consumption of diesel on rig trucks diverted to nat gas with the big push to nonrenewables ?

4. Increased Spending especially foreign spending reduced and brought home with massive infrastructure renewal for bridges, environmental clean ups, roads, etc around 3 years ago ?

5. Minimum wage increased, tax cuts on middle class, tax increase on Warren Buffets, etc such that more money on the bottom to afford the houses that all the leverage was placed ?

6. Fine, liar loaners existed because of legislation - but what IF the leverage instrumentation was prohibited such that 30:1 leverage could not be allowed ( i.e. the amplification of the liar loans into commodities ) by wall street ?

When the subprime reared it's head in May 2007 Paulson was on radio and TV saying that the market would be able to clean that out and make the market stronger.

Would this process of cleaning up the subprimes had been more possible if there was no leverage allowed on backs of liar loans ( like if the ratings agencies rated the loans appropriately ) ??

IF TRUE, that IF it had been prohibited that wall street could not make debt instruments of investment ( and the 30:1 leverage associated with it ) on the backs of liar loans say with real ratings, THEN it is not the fault of politicians for the legislation to get liar loaners in homes and the fault entirely is that of Wall Street and the leveraged instruments.

If there had been no leverage and amplification of the debt risk, then the legislation would not have been a big deal and truly the market would have cleaned itself up.

googleheim said...

Hi Mr Norman :

Looks like you are in Schiff's boat with only one foot :

I researched your blog and in June 2008 you presented evidence of your forward thinking yet your other shoe was not running to the hills and out of the U$D where Schiff bit the dust.

Instead you answer my question in the other comment of mine on this page :

Quote from Mike Norman blog August or June 2008 :

> > 4) Most of us off wall street folks could get behind some form of > assistance for financial's if we heard more conversation> > about what would come after. Business as usual? Are the same people > already working on the next scam?> > Many wallstreet indians may be suffering but the chiefs who stole the > apples remain in place, or leave with more than> > enough booty to open up a new scam across the street.> > As for the point of B. Sterns goes down, I will feel it in my middle > class life..... I already do... Commodities went up,> > disrupting my life and business because money fled from financial's. It > had to go somewhere. I had to make dramatic> > adjustments.. Just tell me what will change on wall street and who will > change it.



seems like this is a generic answer that you would have said 2007 or 2008 or 2001 what have you.