Jason Farrell

Federal Reserve chairman Ben Bernanke just can’t catch a break. Earlier this week, Alan Greenspan disagreed with Bernanke over federal spending. A few days earlier, another predecessor, Paul Volcker, questioned the Fed’s “dual mandate” to boost employment and contain inflation.

Volcker believes the central bank should only protect the dollar.

“I know that it is fashionable to talk about a dual mandate,” he told the Economic Club of New York. “[The mandate is] illusory in the sense that it implies a trade-off between economic growth and price stability.” Volcker believes the concept has been refuted for a long time.

Under Bernanke’s direction, the Federal Reserve has committed to printing money until unemployment falls below 6.5%. With the current rate at 7.6%, they have a long way to go.

“[The assumption is],” Volcker echoed his comments from I.O.U.S.A. to the Economic Club, “the inflation rate can be manipulated to reach economic objectives… But all experience amply demonstrates that inflation… is hard to control and reverse. Credibility is lost.”

As Fed chief in the early 1980s, Volcker is credited with clamping down on money creation to cap the runaway inflation of the prior decade. “I just followed the market,” he explained when we interviewed him for the film. “We needed to raise rates in order to attract the capital necessary to fund operations of the government.”

Volcker’s lesson for the Fed: “Credibility is an enormous asset. Once earned, it must not be frittered away.”

Taken together with Greenspan’s recent comments, Paul Volcker’s remarks suggest that there is mounting pressure on the Fed to end asset purchases. QE may end soon. If it does, not only will interest rates change, but the markets may not react kindly.

Jason Farrell

For The Daily Reckoning

You May Also Like:


Ben Bernanke We Hardly Knew Ye

Peter Coyne

In just three short days, Ben Bernanke will officially pass the baton of Fed Chairman to the waiting hands of Janet Yellen. (Sigh...) It's been an interesting 7 years. And for Peter Coyne, somewhat bittersweet. After all... "Helicopter Janet" just doesn't have the same ring to it. Time will tell, but here's hoping she's just as entertaining as her predecessor...

Jason Farrell

Jason M. Farrell is a writer based in Washington D.C. and Baltimore, MD. Before joining Agora Financial in 2012 he was a research fellow at the Center for Competitive Politics, where his work was cited by the New York Post, Albany Times Union and the New York State Senate. He has been published at United Liberty, The Federalist, The Daily Caller and LewRockwell.com among many other blogs and news sites.

Recent Articles

How the American Dream Can Make You 14-Times Your Money

Chris Mayer

Most U.S. citizens subscribe to an idea called the American dream - working hard on a level playing field so you can "get ahead" in life. But that's not what the original "American dream" was all about. As Chris Mayer explains, that term originally referred to a completely different, yet equally important goal. Read on...


Why Too Much Data Might Actually Protect Your Privacy

Sam Volkering

The world is awash with data. All these data will shape the future, helping people make smarter decisions and act faster. But to realize this vision, there has to be a way to crunch the data. And with such a huge amount of it, that could be a problem. Luckily, there's a unique solution on the horizon. Sam Volkering explains...


Laissez Faire
Why the Fed Has Declared War on Your Money

Peter Ferrara

The value of the US dollar has been steadily declining for nearly a century. Thanks to Nixon, Greenspan and a slew of other "leaders" the poor greenback is a sad shell of its former self. But there is a way to reverse this trend, and restore it to its former glory... if only those in power were willing to do it. Peter Ferrara explains...


How to Trade the Return of Social Media Stocks

Greg Guenthner

The word of the day is "growth." With GDP screaming higher in the second quarter it appears social media stocks have taken this as a sign and have started showing their own outsized growth. Today, Greg Guenthner shows you how to play this trend for huge gains as the second half of the year gets in full swing...


Maestro
6 Major Flaws in the Fed’s Economic Model

James Rickards

Use what analogy you will: a car, a clock, a chemistry experiment... the point remains that the Fed believes it can control the economy. Indeed the Fed will stop at nothing to realize the goals of its dual mandate" to maximize job growth and maintain price stability. But, as Jim Rickards expalins, that conceit always ends in disaster. Read on...