Volcker: US Economy Dependent on Government Support

Former Federal Reserve chairman Paul Volcker, keeping his name in the news, remains dour about the economy. This weekend in Germany, he opened up about the still underway crisis and how the few signs of economic life he’s witnessed are mainly the result of government intervention.

According to Bloomberg:

“…Volcker said the financial crisis was still continuing and the U.S. economy is ‘pretty dependent’ on government support. The test for policymakers now is to time the exit from their emergency fiscal and monetary stimulus, he said.

“‘You’ve not got much room for exiting right now,’ Volcker said.”

He went on to explain, for at least the second time this week, that banks in crisis should not be aided unless they stick to plain vanilla activities:

“The ‘safety net’ provided by the U.S. government ‘should not be extended beyond the core commercial-banking business,’ Volcker, 82, said in an interview yesterday at Deutsche Bank AG’s Berlin office, where he was attending a conference. ‘They can do trading and do anything they want, but then they shouldn’t have access to the safety net.’

“…[he] called for regulators to provide government support only to banks that provide essential services like deposit-taking and business payments. He has suggested prohibiting them from owning or sponsoring hedge funds, private-equity funds or from engaging in proprietary trading.”

Volcker appears committed to keeping these issues in the public eye, and we’ll keep vigilant about what traction he finds. More details are available in Bloomberg’s coverage of Goldman trading activity and government safety nets.

The Daily Reckoning