I find this to be very encouraging:

President-elect Barack Obama will appoint former Federal Reserve Chairman Paul Volcker on Wednesday to be the chairman of a new White House advisory board tasked with helping to lift the nation from recession and stabilize financial markets, Democratic officials say.

The panel will be called the President’s Economic Recovery Advisory Board.

Volcker is one of the true heroes of Central Banking and American economics. He is the rare political player who is willing to make the difficult and unpopular decision, regardless of the polls and politics. Some people believe you just have to do what’s right, and not what’s expedient. If a President wanted to get the real story — stright up no chaser — than you cannot do any better than Volcker.

This is a savvy move by the President-elect, counter-balancing what many perceive as a Clinton-heavy economics team. The advisory panel will brief the president directly, and provide expert advice outside the usual channels.

The WSJ noted the panel is “modeled on the Foreign Intelligence Advisory Board established by then-President Dwight Eisenhower in 1956, at the height of the Cold War, when officials worried that that the existing bureaucratic structure was inadequate to help the U.S. keep pace with the Soviet threat. The financial crisis has drawn similar worries that the government isn’t properly organized to monitor and respond to modern financial markets.”

Note that Volcker has his own NYTimes Topic page here.

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Sources:
Volcker Tapped for Advisory Role
Jonathan Weisman
WSJ, NOVEMBER 26, 2008

http://online.wsj.com/article/SB122767048323359165.html

Paul Volcker for Treasury Secretary
JOE NOCERA
NYT, October 17, 2008

http://executivesuite.blogs.nytimes.com/2008/10/17/paul-volcker-for-treasury-secretary/

The Return of Larry Summers
DAVID LEONHARDT
NYT, November 25, 2008

http://www.nytimes.com/2008/11/26/business/economy/26leonhardt.html

Category: Bailouts, Economy, Federal Reserve

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

42 Responses to “The Return of Tall Paul”

  1. Steve Barry says:

    Love Volcker…let’s see if he still has the balls to take some short-term pain for the longer term good.

  2. I’m not going to go into too many details..though, while I think very highly of Volcker, something tells me that there’s more going on with this move, than meets the eye.

    Telling, should be, that He’s not in ‘center square’ (e.g. SecTreas, back as FedChief), but merely appended to some ‘advisory’ body with no formal powers.

    Further, if I were a Gambling man, I’d wager that, He, Volcker, would have, for his own account, no part in any position of direct powers, and the best that the Obama clique could manage, from him, was some Name/Resume`-Rent to fuel stories like this one..

  3. Archiphage says:

    The phrase ‘heroes of Central Banking’ sounds to me a bit like Hero of the Soviet Union.
    Notable recipients:
    ‘Uncle Joe’ Stalin (twice)
    Leonid Brezhnev (4 times… probably none of them for eyebrow waxing)
    Fidel Castro (once… piker.)
    Ramon Mercader (Once, for performing brain surgery on a one Leon Trotsky. Stalin considered it a great success. Trotsky unavailable for comment.)

  4. Look at the rest of the Central Bankers he shared the same title with: Arthur Burns, Alan Greenspan, and now Ben Bernanke.

    Hero — in the non-Soviet context — is the right word . . .

  5. pj says:

    Barry, I think its been a long while since you wrote on the macro themes playing out. Last I remember was when you gave those 10 reasons to be bullish etc. Much has changed since then, or has it?
    Looking forward to your views on the broader way the endgame may play out w.r.t recession/depression, currency debasement, inflation/deflation etc etc. It is getting confusing as hell and I really dont know if anyone has a clue. Start a thread on it, you have many smart commentators here.

    PS: Dont get your hopes up on Volcker too much. It is beyond anyone, I think.

  6. Gene says:

    Mr. Volcker has no real power in this post. The real question is, he’s there, now who will listen to him?

    I am old enough to have lived through horrendous interest rate hikes and Carter’s misery index of something like 21 or 22. I watched in agony as small businesses were bent over double by inflation and high interest rates along the Gulf coast.

    All I can think of is my grandfather telling me: “Be careful what you ask for, you may get it.”

  7. Bruce in Tn says:

    Volcker: 2 Thumbs up, however he’s used.

    He understands that the way this particular crisis has been handled is antithetical to the way he handled the Arthur Burns mess. Hopefully, since they’ve asked him to serve, it means he will be listened to in a serious way…

    I call what we’ve been doing here Alternative Spending.

    Our >70% consumer led economy has seen a strike by the consumer insofar as spending is concerned. The men in charge of our government have decided that this spending must continue so they have transfered the spending from the taxpayer and consumer to the government. Big problem here though. We have now pledged more money than WWII, yet tires, gas, aren’t being rationed. No war bonds are being sold. Government is not being pared down to the bare minimum to get us through this. Yet Uncle Sam, is , by definition, a Penniless Pauper. Every cent he pledges comes from you and me, the taxpayer.

    In our representative democracy, our now and future taxes are being spent, at an astounding rate. Remember, the “emergency” and spending really began about September 1. Yes, in reality, about 3 months. And now, in a short three months, we’ve pledged more than WWII. And this government spending is simply the alternative spending that the taxpayer realized was more than he or she could continue to make. The men in power decided that this halt in spending by the actual producers of goods and services was ill fated, and therefore they have stepped in with massive spending, and it ultimately comes from you and me, through an alternative pipeline.

    If this were a college course, this would be the lab of all labs. I do so think of the line in Young Frankenstein, when the monster is struck……”It’s Alive!!!”

    Yes, Uncle Sam is broke. But he, through a handful of elected or non-elected representatives has embarked on a spending spree unknown heretofore in human history.

  8. bonghiteric says:

    The most important sentence of the article:

    “Mr. Volcker may serve another purpose, said Martin Baily, a former Council of Economic Advisers chairman under President Clinton. He will be a counterweight to Mr. Summers, who may dominate policy making from his perch inside the White House.”

    I don’t fault Obama for drawing on former Clinton staffers and even Geithner (for me the jury is still out on him). The situation is too critical to bring in a cadre of new faces to get up to speed. I don’t believe that everyone at the fed and treasury is on board with Paulson and Bernanke’s actions.

  9. Archiphage says:

    Well, coming from the idea that central banking is an evil activity, I have trouble calling anyone who does it a hero. I might have less trouble with it if, Volcker had used his office and the years since to further that idea. As far as I am aware, he believes that central banking is a-ok. I think there are only two ways I could ever believe Volcker is a hero:
    1) If I had some evidence that he took the office, knowing that it was an evil office, in an attempt to limit the damage it caused.
    2) If I became convinced that central banking was good.

    2 is the most unlikely by far, but I wouldn’t bet much on 1 either.

  10. Greg0658 says:

    On Volker having our next Presidents ear without authority … baby steps … or this culture will rip any idea from all sides.

    On thread ideas … GDP … there is alot of talk on the airwaves how we lost Trillions in this downturn. It’s true, but only #s.
    Real loss is the blownup ship by pirates. The blownup Marriot in the orient. Wildfires in Cal. Iraq War losses.

    IMO reporting GDP with Administrative paper pushing wages is a false positive. And beyond that seems this GDP structure in riddled with duplicate reporting. A manufacturer creates a Humvee, it gets transported to Iraq, and the war destroys it. All paychecks are not GDP.

    How we lost Trillions in this downturn? No LOSS just TRANSFER. And the transfers have only begun.

  11. Archiphage,

    Of course, you’re correct, Central Banking is a hideous Fraud, the Grandest Conceit of History.

    Only within that paradigm is Volcker laudable, as the best of the Worst.

    Or, differently, he can been seen as the one that fired the first ‘bazooka’ in the War to de-Industrialize the, former, u. S. of A.. A long-term, and unrepentant, member of the CFR that will, no matter how this script unfolds, always enjoy the wet tongue and cold nose of our lapdog Media Complex..

    http://www.trilateral.org/membship/bios/pv.htm

    http://www.thefreedictionary.com/conceit
    http://www.cfr.org/

  12. Archiphage,

    Of course, you’re correct, Central Banking is a hideous Fraud, the Grandest Conceit of History.

    Only within that paradigm is Volcker laudable, as the best of the Worst.

    Or, differently, he can been seen as the one that fired the first ‘bazooka’ in the War to de-Industrialize the, former, u. S. of A.. A long-term, and unrepentant, member of the ‘Establishment’ that will, no matter how this script unfolds, always enjoy the wet tongue and cold nose of our lapdog Media Complex..

    http://www.trilateral.org/membship/bios/pv.htm

  13. Groty says:

    To break inflation, Volcker is the only FED Chairman to preside over a “double dip” recession in the 20th century. His single minded focus on inflation caused GDP to contract 8% in a single quarter thanks to his absurdly high interest rate policy. Unemployment went through the roof, putting thousands of families in poverty.

    Bankruptcies at small businesses and “family farms” skyrocketed. I’d go so far as to suggest his policies almost single handedly destroyed the family farm. I remember going to farm foreclosure auctions with my father many, many times during the wonderful Volcker era as a kid and seeing the despair and hopeless in so many eyes. I’ll never forget one farmer climbed a ladder, wrapped a log chain around the rafter in his barn, and hung himself on the morning of the auction.

    Volcker is a great man.

  14. constantnormal says:

    @bonghiteric —

    “… I don’t believe that everyone at the fed and treasury is on board with Paulson and Bernanke’s actions.”

    I question whether Bernanke himself has any confidence in them — his body language and expressions certainly don’t show an ounce of confidence.

    My guess is that Hammerin’ Hank Paulson is dominating the actions emanating from the administration, and from the lack of follow-thru on his part, he is clearly out of control and frantically throwing actions right and left, in a bureaucratic “flailing” exercise, just trying his best to make it through the next 55 days without the roof falling in while he is “in control”.

    It is transparently clear (a remarkable thing, in an administration that has tried its best to be opaque) that Paulson has not a clue as to how to respond to this situation. And yet he is intrinsically unable to admit it and ask for help. And who would he ask? Dubya? His is a Type-A personality belief structure that insists that order flows from on high, he would never look for help within his organization.

    For Bernanke’s part, he has got to be struggling with all those years of academic studies of how the Great Depression unfolded, and his (untested, up until now) theories about how things could have been altered. Those theories show no signs yet of having any impact whatsoever, other than to make things worse, possibly in a different direction. He is coming to the realization that 2008 is not 1933, and that virtually everything in the economy is radically different now. The old saw about generals fighting the last war comes to mind.

    I wonder is anyone inside either the Fed or Treasury has seriously pondered how to go about reducing the leverage in the economy. I don’t believe it can be done without removing many of the large failing institutions, burning their corpses on a funeral pyre of toxic debt, along with their lenders and stockholders.

  15. Volcker … does this guy understand how he has been used throughout his entire career? Does he fathom his practical similarity to Nazi Germany’s Hjalmar Schacht? This appointment represents but one thing. More ammo in an effort to bankrupt Treasury, consolidate financial control in private hands, and impose a global bankers dictatorship. Period.

  16. Gene says:

    @Groty:

    While you were watching farmers go out of business, I was watching Gulf fishermen go out of business. Everything seems so shiny and pure from a text book perspective. It wasn’t any fun at all living through it.

  17. Bruce N Tennessee says:

    Well, I lived through Burns and then Volcker also….Burns was clueless, and if you folks recall we had stagflation….no growth and galloping inflation..farmers and gulf fishermen had that too, we all did.

    At the time, I was buying Kruggerands and silver bars…just to try to stay ahead.

    Volcker broght stability, say what you might…it is not his fault we, through congress, have had deficit spending all our adult lives. If you want to blame someone for this mess, blame ever increasing national debt…none of us run our families this way, and the nation can’t be run this way either, without massive dislocations of the type we are observing now.

  18. DavidB says:

    Well, coming from the idea that central banking is an evil activity, I have trouble calling anyone who does it a hero. I might have less trouble with it if, Volcker had used his office and the years since to further that idea. As far as I am aware, he believes that central banking is a-ok.

    It is kind of like the guy who puts a rock in your shoe and forces you on a five mile hike. After the first couple miles of your agonized screams he stops, takes out the rock and then expects to be congratulated for helping you out of your bind

  19. Archiphage says:

    There is plenty of blame to go around. Now, if I don’t get some baking done forthwith, I will have my own measure of grief to deal with. Take care and Happy Thanksgiving all…

  20. Mannwich says:

    @Bruce: Perhaps most of us “don’t run our families this way” but sadly today far too many Americans do just that. Guess who they’re role model is/was?

    This is why I think that holiday spending by a delusional/ignorant/shocked/credit spending/consuming addicted public won’t be as bad as people think it will be, which means the market eventually bounces between now and the end of the year.

  21. dgov says:

    That log chain story made my week.

  22. ZackAttack says:

    Volcker is one of the Great Men, no doubt. But I would caution against hero worship. His time was very different from our time. A big step here – which many have not yet made – is understanding that we are the only ones who can save us.

  23. ZackAttack says:

    Kind of amazing that there’s such a leadership gap, we’re forced to focus on Obama’s team when he hasn’t even been sworn in yet. It’s like we know nothing useful is forthcoming from the current administration.

    Bush is out stumping in Peru for free trade. Has anyone *seen* Cheney for months?

    My thinking is, this is intentional. Let Congress and Paulson be the front men. The neocons are going to try to write themselves out of it with, I think the word for it is ‘dolchstoss’ myth, that things were all unicorn-and-fairy-dust good until the Dem usurpers and their media apologists took power in 2006 and blew up the world.

  24. Mike in Nola says:

    Zack:

    They are writing themselves out of it by, what else, blaming Clinton. I keep getting emails from a brother in law about the push to expand home ownership starting with Clinton and that all these greedy bastards were forced to make bad loans and pocket billions in bonuses by those commie Dems. You will see (and hear, if you listen to Rush) a lot more of it.

    Gasparino is on now spouting the same drivel.

  25. DavidB says:

    Has anyone *seen* Cheney for months?

    I think he’s out shooting someone

  26. Mannwich says:

    @Mike in Nola: The delusional, intellectually dishonest wing nuts on the right will buy this argument but I really don’t think anyone else will. And they’re a dwindling minority of the populace. That’s the good news.

    What kills me about those folks is they’re always throwing the “personal responsibility” crap out there for other people to adhere to, but when it comes time for them to take some of that medicine, they will have none of it. Bunch of scumbags and hypocrites (sorry, am a tad cranky today).

  27. patient renter says:

    one of the true heroes of Central Banking

    I can’t help it, this made me chuckle. What is it to be a hero of something that was for so long despised?

    The phrase ‘heroes of Central Banking’ sounds to me a bit like Hero of the Soviet Union.

    Exactly!

    Look at the rest of the Central Bankers he shared the same title with

    I get what you’re saying – he was great at his position (by comparison). But still, his position was that of heading a soviet style central economic planning/banking cartel.

  28. KJ Foehr says:

    Volcker will have no power?

    IMO, he who has the President’s ear truly has power. I’m betting Obama will be listening closely to Volcker’s advice given his rep and wisdom forged by crisis in the ’80s.

    Obama seems to have been born to do this job, and this is another example of it.

  29. DL says:

    The unemployment rate in December of 1982 was about 10.8%.

    Is Obama going to permit that sort of level to be reached again?

    I think not.

  30. DL says:

    The best course of action, from the long term perspective (e.g., 10 years) is for the government to stop propping up the prices of assets.

    The best course of action, from the perspective of the next 12 months, however, is for the government to continue trying to prop up asset prices.

    So unless Volcker advocates the second of these two possibilities, there’s no reason to believe that Obama will heed Volcker’s advice.

  31. KJ Foehr says:

    The best time for a president to take some pain on the economy is at the beginning of his term. That’s what Reagan and Volcker did in ’81 & ’82, and things improved enough by ’84 that Reagan was able to get re-elected.

    IMO, Obama is not afraid to take some pain, especially in 2009.

    And given that there is going to be pain anyway, taking a little more pain sooner to improve the recovery later seems an easy choice.

  32. me says:

    What Groty and Gene said. Just what we need, another period of 10.7% unemployment. If the numbers today get to 10.7%, imagine how high the real rate would be? 25%, another depression.

  33. Brett Tibbitts says:

    The financial world is 100% positive on Paul Volcker’s being able to achieve superhuman results. That alone makes me nervous. He is now 81 years old (remember, John McCain was too old to be President at 72 according to the media and Democrats). Plus, he now has to work with a far different team than Ronald Reagan’s team. He will be working with a team that designed much of the mess we are in. I certainly hope I am wrong, but there is a chance that Volcker’s results this time will be far more like the results he had under Jimmy Carter than Ronald Reagan – the Reagan period is when he achieved his “superhuman” moniker.

  34. ottovbvs says:

    Of course it’s encouraging but not particularly surprising since Big Paul has been advising Obama for months. At 83 there was no way he could carry the weight of probably the second most important, first at this precise moment, cabinet spot. This keeps him close, putting in his five cents along with Summers. As David Brooks rather grudgingly admitted in his column the other day, so far Obama’s picks are almost as good as the hype. We’ve clearly got a grim 2009 stretching in front of us and to be fair quite a lot of the heavy lifting as far as stabilizing the financial system is concerned is already in the works. I don’t see any sustainable market recovery until second half of next year so there’s no hurry. The Dow’s going to be at or around the 8000 mark for the forseeable future which is worse than I expected with continuing volatility. There are some bargains out there if you are interested in long term investments.

  35. ottovbvs says:

    Brett Tibbitts Says:
    “Plus, he now has to work with a far different team than Ronald Reagan’s team. He will be working with a team that designed much of the mess we are in”

    Volcker was appointed by Carter and fired by Reagan ie. he didn’t re-appoint him as he preferred Easy Al who is actually one of the prime culprits for this mess. I’m not sure how messrs Geithner and Summers designed this mess, no doubt you can tell us.

  36. Brett Tibbitts says:

    ottovbvs: IMHO, he will be working with same team that brought us much of the mess we are in…. The repeal of Glass Steagall and the refusal to regulate derivatives date back to Rubin (who is still very much an advisor to Obama even if he is in hiding due to the Citi debacle), Summers and Greenspan. (Bernanke being just a reincarnate of Greenspan, the man most responsible for the mess we are in). Geithner has been at the center of the absolute mess in picking and choosing who survives, along with Paulson and Bernanke.

    There is no precedent for what the government is doing right now. Obama and his team seem to be saying that we are going to double and triple down on what the current Bush team is doing, because it isn’t enough. Yet there is no evidence that this will work. Yes, the banking crisis seems to be abating for now, but we are creating huge banks with bigger problems.

    I see no evidence of Volcker’s advising that we have to take the hard medicine that we took in the 70′s and 80′s….what is going on now is that the smart team has arrived and the sun is going to shine.

    It seems to me IMHO that the car companies need to go through bankruptcy…plain and simple. The home builiding companies need to go through bankruptcy….plain and simple. And the big banks should be split up into regional banks with new management when they come to the government for help ….that will also create more jobs btw.

    At some point, the Fed gov won’t be able to rescue or fund the rescues anymore…why don’t we start owning up to that hard reality now instead of going down the track of creating billions of dollars of more debt that our children will be left holding and THEN figuring out that what we have done won’t work . If we don’t watch out, our children will be houseboys to the Chinese if we don’t get our house in order and keep expecting the Asian countries to buy our debt.

  37. leftback says:

    Volcker is there to try to keep everyone honest.
    He is the only one who knows how to stuff the genie back in the bottle once it gets out…

  38. m1ek says:

    What is it about this topic that managed to pull all the Ayn Randites out of their moms’ basements anyways? Aren’t they ashamed enough after what happened when their boy Greenspan had the wheel? Apparently not. What, I wonder, would it actually take?

  39. Juan says:

    otto,

    While Summers may not have ‘designed this mess’, it seems reasonable to believe that he could not have been appointed Sec. of Treasury had he not been on board with the “stock market Keynesianism’* of the 1990s.

    *substituting private for public deficit supported not through rising corporate profits [which, for the 1990's cycle, peaked in 1997] but through ‘wealth effect’ of a stock market bubble…

  40. tom a taxpayer says:

    Volcker is a good man, but Obama is using Volcker as window dressing. Obama is desparately trying to calm the markets that fear him and the Democrat horde about to be unleashed in the House and Senate. Volcker will only be an ADVISOR. Volcker will have no power over any federal agency. It is delusional to believe that Obama and the Democrats controlling the House and Senate are going to take the strong medicine that Volcker might recommend. Obama is throwing sand in the eyes of the market.

  41. toneybrooks says:

    Volcker’s appointment along with those of other highly respected economists have gone a long way toward mitigating fear in this market and setting the stage for this “Obama Rally.” Good leadership goes a long way in restoring confidence both at home and abroad. No one really knows whether quantitative easing, which is deflationary, will prevent a depression or not.

  42. TKL says:

    Volcker to the rescue? The one who clamored for the Fed to RAISE rates last April? Yeah, he’s a real genius — a true visionary. If only we’d followed his advice, maybe we’d be in a certifiable depression by now.

    And Geithner? We’re supposed to be comforted by the elevation of the guy who’s run the NY Fed since 2003? How did that go? (For more on Geithner, see generally http://www.time.com/time/nation/article/0,8599,1861895,00.html)

    Finally, not that the host of this blog cares, but the new system of assigning a password that I’m supposed to use just for the privilege of commenting here is far too cumbersome. Why go out of one’s way to provide this site with free content?