Volcker is right man for the job
BY TERRY SAVAGE Nov 27, 2008
Terry Savage interviews Paul Volcker recently regarding the economy and Obamas presidential victory.
Updated: May 3, 2013 12:14PM
The stock market likes President-elect Barack Obama's picks for his economic team - and you should too. The Dow Jones industrial average posted a four-day string of gains, closing up 247 points Thursday in pre-holiday trading. It was the biggest four-day percentage gain since 1932.
Though the market has more than personalities to consider these days, the gains can certainly be considered a sign that investors are thinking far more positively than they were in the two-day rout that greeted Obama's election.
The most confidence-inspiring move came as former Fed Chairman Paul Volcker was named Wednesday to chair a new independent panel advising the President on the financial markets and the economy. The President-elect couldn't have made a better choice - both practically and symbolically.
For those who don't remember Volcker's actions of 25 years ago when he was Fed chairman, let me say succinctly that he saved the American dollar and the economy.
When Paul Volcker became Fed chairman in 1979, inflation was soaring. Consumer prices were rising at a 13 percent annual rate, reflecting the previous decade's increase in the money supply to pay for both the Vietnam War and rising energy prices. As a result, the dollar was crashing and gold traded at $850 an ounce.
The towering Volcker (he stands 6 feet 8 inches) had the courage to push interest rates so high that the prime rate hit 21.5 percent! It was enough to cool the economy into a severe recession in 1980-82, but his tough medicine ultimately restored faith in the dollar. And that move paved the way, in part, for two decades of economic growth.
I spoke with Mr. Volcker in September, at a global financial leadership conference, just as the banking crisis was heating up. He was a strong advocate of creating a separate government-backed institution to buy the bad assets, liquifying the banks so they could keep credit flowing. Instead, the Paulson bailout program has lurched from one plan to another, always a step behind the curve.
There is no doubt in my mind that Paul Volcker will be a creative force for market-based solutions and programs within Obama's new economic team. That's what market participants were applauding with a rally.
There will be tough economic times ahead, but it's good to know that the people making policy understand the problems - and that they have a track record of success. And that's The Savage Truth!