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.
For The Daily Reckoning
Once again, Wall Street will hang on each word with nauseating myopia trying to determine if infinite quantitative easing will soon become finite. That’s the problem with a staged retreat: Everyone’s watching for it and reacts accordingly.
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.
Everyone knows how comically terrible government accounting is, but few people may realize just how bad it's gotten... This infographic shows how trillions of dollars of government money has gone missing money over the last several years. And what's worse... that no one seems to care where it went...
It's amazing what some people will do out of sheer boredom. Investors, for example, will often throw money around, simply because they have nothing better to do - as if making MORE moves automatically translates to MORE money. Today, Chris Mayer explains why this emotion is so dangerous and how staving it off can save you a ton of money...
When a big company IPOs, investors can hardly contain their excitement. In a flash of exuberance, they throw money at a company they've already decided is worth something... even if the market hasn't made up its mind yet. Today, Jonas Elmerraji explains how one simple word can change the fate of every IPO investor. Read on...
Think it's impossible to escape the throes of Obamacare? Think again. Today, Chris Campbell relays the story of one man was able to get out from under the (un)Affordable Care Act, and how you can do it too. Don't see another doctor, take another pill, or shop around for better medical insurance until you read his story...
For the last few days, the market has been buzzing with excitement over the Alibaba IPO. Well, the day is finally here. And while some investors line up with their lotto tickets, ready to snatch it up no matter what the price, Greg Guenthner suggests a slightly more restrained approach. Read on...