Paul Volcker - The Solution?

Who and where will the solutions to the current economic problems come from?

A starting assumption: The UK might as well be the 51st state of the USA. A brief analysis of the last 40-odd years of interest rate and inflation patterns show a strong correlation between the two (much stronger than most of Europe).

If we accept that the above holds to a reasonable degree, then we need to take a close look at the US for leads of where we are going and where solutions may lie.

There aren't many policymakers in either the UK or US that inspire me with confidence at present. One notable exception is a bloke called Paul Volcker.

Paul who??

Paul Volcker was chairman of the Federal Reserve (US central bank) between 1979 and 1987. His relevance today can be summed up by saying that he is a 'friend of sound money', which is something that many of today's 'free money' generation will find weird. After all, what's wrong with abolishing taxation and just printing the money to fund a bottomless pit bailout programme and stimulus package?

The reason I think it matters is that long-term 'sound money' is the most likely solution to our current problems. As a society, we don't realise it yet - it's too early in the downturn - but history tells us that at some point funny money must be replaced by sound money to heal the economy. We can't carry on funding society with printed money - sorry to disappoint fans of all the stimuli packages!

This is someone who has been there and done it in an economic crisis; taking tough decisions that his predecesors were too afraid to. Google the guy - he talks sense in straightforward language, unlike the constant riddles from his successor at the Fed, the 'sage' Sir Alan Greenspan. Here's an example from today:

Quote:
Some banks are not only "too big to fail," Mr. Volcker said. Some are "too big to exist."

Dead right; and the further we get into this mess the more he will be proved correct...

Volcker has been pulled in by Obama to head up a new economic advisory panel - which is an encouraging sign. But his 'sound money' views don't fit with many in Washington at present, so there seems to a lot of delaying going on. Let's hope he is consulted sooner rather than later.

When things get really messy (maybe a few years away yet) at some point we'll get desperate and then you can expect that Paul Volcker (or someone similar) will get wheeled out to come up with the solution.

In the meantime, the Daily Mash is probably closer to the truth than most mainstream economists at present!