Obama Gets Huge Endorsement: Paul Volcker

First, I'm back from vacation and I will start blogging again tomorrow.

I've been silent on the Democratic primary. I'm not much of a political writer (duh!) and am not that astute at the underlying political trends/give and take of everyday politics. In addition, I'm very much a political centrist, which is not exactly where the primaries are fought.

I should also state that I was first a Dodd supporter, largely because he was easily the most experienced candidate. Since he dropped out, I've been pretty agnostic about the whole primary thing.

However, this is huge news, especially with economic wonks. In addition, the following endorsement comes from my favorite Federal Reserve Chairman.

From the WSJ:

"After 30 years in government, serving under five presidents of both parties and chairing two non-partisan commissions on the Public Service, I have been reluctant to engage in political campaigns. The time has come to overcome that reluctance," Mr. Volcker said in a statement today. "However, it is not the current turmoil in markets or the economic uncertainties that have impelled my decision. Rather, it is the breadth and depth of challenges that face our nation at home and abroad. Those challenges demand a new leadership and a fresh approach."

He concluded: "It is only Barack Obama, in his person, in his ideas, in his ability to understand and to articulate both our needs and our hopes that provide the potential for strong and fresh leadership. That leadership must begin here in America but it can also restore needed confidence in our vision, our strength, and our purposes right around the world."

That was from from Paul Volcker, former chairman of the Federal Reserve. Here's a little history. Volcker's actions in the early 1980s are the primary reason the country didn't fall into a period of rapidly escalating inflation in the early 1980s. His solution wasn't exactly popular. He jacked-up interest rates to massively high levels. Here's a chart of the effective Federal funds rate from the St. Louis Federal Reserve.

The high points are Volckers doing. His actions are a primary reason the U.S. experienced a double-dip recession in the early 1980s.

However, his actions killed inflation. Here's a chart of inflation from the St. Louis Fed.

Notice how inflation died after the interest rate hikes of the early 1980s. In other words, Volcker's actions were successful. And that's a really good thing because no one wants to live through massive inflation.

In addition, Volcker is one of the few economists who has correctly diagnosed the the central problem of the U.S. economy. On April 10, 2005, Volcker wrote an opinion piece in the Washington Post titled, An Economy on Thin Ice. Here is the central issue:

The difficulty is that this seemingly comfortable pattern can't go on indefinitely. I don't know of any country that has managed to consume and invest 6 percent more than it produces for long. The United States is absorbing about 80 percent of the net flow of international capital. And at some point, both central banks and private institutions will have their fill of dollars.

I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change.

The point of all this is simple: Volcker has "been there and done that" in more ways then one. He is an accomplished economist with solid practical real-world experience.

This is an endorsement that carries a great deal of weight with the economic crowd.

Comments

[garnetwood]

Anybody notice that the Dow started its major slide when Obama started rising in the polls. Coincidence?

[Rule Of Law]

C'mon Hale, the guy who wrote just today--

Once again, the party of "personal responsibility" and "fiscal conservatism" has demonstrated through its actions that it is neither.

--has as clear a political eye as anyone could ask for!!!

[Wiredwilly]

Volker killed inflation ? In 1932 Gold was $ 20 an ounce. Now it's $900 an ounce & most of America's Gold has been shipped to Germany & Switzerland. A car that cost $450 in 1936 is now $ 20,000. Been to the grocery store lately ? Volker raised the interest rates to put more U.S. Taxpayer money into the hands of Federal Reserve Bankers, not to stop inflation. Volker endorsed Obama because he is the most ignorant of what's actually going on inside the Central Banks and therefore the easiest to control. As Alan Greenspan said of G. W. Bush, " he had this wonderful characteristic of knowing it was not to his advantage or to ours to interfere with the actions of the Federal Reserve ". Volker wants an idiot, not a President.

[Idytme]

Obama is from the University of Chicago, he has the most right leaning economic plan and his advisers are Friedmannites.
It is one reason why I am very worried about this "democrat" and seriously question if his team has what it takes to get our country out of the bad economic times and not Friedman-like policies like tax rebates (the center of Obama's plan).
Many moderate economic commentators are *already* saying that this package isn't enough, or are going as far as saying it won't do much of anything. We need to restructure, which is the exact opposite of Friedman's "unfettered markets" approach.
Some are focusing on the housing crisis and only Hillary Clinton's plan really deals with it.
The domino effect of the housing problem is only going to continue cascading and you well know this will also involve the stock market as well as the bond market, in addition to all the personal stories and all the additional jobs.
It is amazing to me all the stuff progressives are willing to overlook with Obama. His Freidman economic team being one of the front and center. If you look at the economy and health care plans, Clinton is much more progressive than he is. Of course Edwards leads the pack, but he did not deal with the housing crisis as well as Clinton did in her plan.

[mrcontinental]

How some of us remember Volker:

http://www.globalresearch.ca/index.php?context=va&aid=7813

[ReasonIsMyReligion]

Bonddad,

Question: How can you of all people take but two metrics and draw an entire picture?

What effect did Reagan's running up the deficit have on the inflation / interest rate / overall economy picture?

[Veri]

Uhhhmmm... How effective is The Federal Reserve at controlling inflation? How about comparing inflation before and after the creation of The Fed? Was the nation better off before or after The Fed?

Economics is voodoo science of a sort. Something of a cross between the science of mathematics and the art of behavioral psychology.

An economically healthy America is nice. However, one that is also superbly educated, physically healthy, and run by people for the people would be much better. America is none of these things compared to other first world nations. Well, we still have "by the people for the people" after a fashion.

[GreedyOldPsychopaths]

Bondad,

Are you an economist or a financial analyst? Volcher's reinging in of the money supply in the early '80s led to the highest unemployment rates (nearly 10% in '82 and '83) since the Great Depression and it is contentious at best to believe that Volcher's actions at the FED ended "Stagflation". "Stagflation" was a result of supply shocks primarily from oil. When the oil supply shock ended with the '80s glut, prices dropped and inflation was tamed.


It was Volcher who changed the FED to a Monetarist (Freidman) tool from the previous Keynesian instrument of influencing aggregate demand. While I would rank his endorsement ahead of "Ann the Man Coulter" for Clinton, I wouldn't get overly excited.

[ReasonIsMyReligion]

The MSM has no long term memory. Most talking heads don't even know who Paul Volcker was, I mean, is.

On the other major topic, Iraq, Hillary's lined up plenty of name brand generals.

Pick your topic. Pick your celebrity. etc.

[barely normal]

While this sounds nice, I'm sure that the explanation offered for the lack of inflation of the '80s is something that will be countered by many as the work of that wunderkind­-cum-proph­et-cum-Pre­sident Ronald Reagan.

Economists are funny in the fact that if you give 5 of them a set of conditions, chances are good that not one will agree with any other. Economics is as much wishful thinking as anything, and far from an exact science. I would give more weight to someone who told me that the world began at 2:53 in the afternoon 12,347 years ago.

That being said, anything to end the quasi-Republican nightmare is a good thing.

[pimothy]

Ditto for nancythera­ginglibera­l.

[Dyogenes]

Another asset that Volcker brings is expertise on using
economic sanctions more effectively to rein in rogue nations. He chaired the extensive investigation of the UN Oil for Food mess, and knows more than he'll ever tell about US abuses of the program and how it was destined to fail, leading to Iraq war. Another brilliant stroke by Obama and his team, especially in the economic area. Wouldn't be surprised to see Warren Buffet join the Obama Page Turners, all with great Experience and Judgement.

[Guitarsandmore]

One Harvard graduate endorses another Harvard graduate – what a surprise.

[Herrington]

At last, the voice of someone that understands (no offense Bondad) economics and is not another Friedman kool aid drinker.

[vbond]

I completely agree, as I have said earlier.

I'm very surprised that this has not been more widely reported, though in fact the flood of major endorsements for Obama has been overwhelming.

Volcker doesn't kid around.

This is "major serious".

Volker AND Hulk Hogan.

LOOK OUT.