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:


A Global War on Savers

Nick Hubble

If Janet Yellen simply continues doing what her forerunner Ben Bernanke did, at some point, something new will happen. You'll get an avalanche. And when it comes to the Federal Reserve's policy of choice (i.e. money printing) that avalanche has always been inflation in the end. Nick Hubble expounds...

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

Bill Bonner
The Road to Zimbabwe is Paved With Central Bankers’ Good Intentions

Bill Bonner

All over the world, central bankers pretend to sweat and toil on behalf of mankind - correcting... adjusting... nullifying the decisions of honest men and women going about their daily business. But did a central bank ever add one single cent the world's wealth? Bill Bonner explores...


Profit Opportunities Rise Alongside Wages and Consumer Spending

Greg Guenthner

Consumer confidence is rising alongside middle class wages. That means the recovery is no longer resting on the shoulders of the 1%. And that's great news going in to the holiday spending frenzy. Today, Greg Guenthner explains how this presents a great investment opportunity in the retail sector. Read on...


5 Min. Forecast
OPEC Meeting Update: Beware the Oil Price Wars

Dave Gonigam

So much for Americans existing "at the mercy of OPEC." According to the Financial Times, U.S. dependence on oil imports from the OPEC countries is now its lowest since May 1985. Dave Gonigam explains how this is affecting global oil prices, and what to expect from this week's OPEC meeting. Read on...