Paul Volcker: Economy may be deteriorating even faster than during Great Depression

[jem]

By allowing China to export into us and peg our currency - we financed China's path into the world economy.

China did not become big economic player because we were idiots. We allowed it so that they had a stake in western economy.

I think the concept was a good one but the spigot should have be turned of sooner.

 

[drsteph]

To a certain extent, there is an advantage to not having a manufacturing economy. Not only is it cleaner, but you don't have the obsolecence that comes in after only a few years.

Perhaps it will be easier to re-industrialize than we think. Of course, we will probably need help at that point because if we don't get it, its going to be hard to re-learn all those tricks of the trade we have so willingly given up for a service economy.

 

[ByLoSellHi]

There are certain, extreme high-value added goods, that few nations used to be able to make.

Some of these things included commercial aircraft, advanced optics, highly advanced medical/scientific equipment, microprocessors, advanced medications (of the nano class), etc.

As globalization has taken root, technology transfers have increased at the speed of fiber optic cable.

When Intel or Boeing builds an advanced plant in Taiwan or China, they've just unlocked the keys to decades of R&D, that the Chinese won't have to pay for and duplicate. Intel is trading cheap fabrication and governmental tax breaks in exchange for what they know will be a loss of technological and manufacturing secrets.

China will not reciprocate, because they care more about long term national security, and this is woven more so into their official doctrine and actions, than it is in the United States.


That is a short term strategy to profitable quarters, and a long term strategy to decade-ish ruin, IMO.

 

[makloda]

Protectionism does not work, even though it sounds so logical, patriotic and intuitive. A good example is the Italian auto industry in the 80s, now an infamous graduate school case study.

You can not close down the borders, penalize trade and expect to prosper. Within 20 years of 'protectionism' all your 'protected' industries will be uncompetitive in the global marketplace and close to bankruptcy. When in history has this ever worked?

 

[ByLoSellHi]

I agree that protectionism is destructive.

The problem that we face is how do you balance completely free trade in an era when you have both an intertwinement of commerce and national security (means of production, technology) and whereby some countries view a strong economy as a necessity of national defense, and other countries view it separately from national defense.

Maybe I'm a radical, but I don't think you can separate the two - in other words, if you can't maintain a high level of technology, the ability to fabricate highly technical and advanced goods, and your economic infrastructure is weak (lower government revenues and low infrastructure and R&D spending), you can't maintain a strong national defense.

 

[stock_trad3r]

Quote from ByLoSellHi:

"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world."

- Paul Volcker, speaking to economists and investors at Columbia University, on February 20th, 2009.

http://www.reuters.com/article/politicsNews/idUSTRE51J5JM20090220?feedType=RSS&feedName=politicsNews

Crisis may be worse than Depression: Volcker
Fri Feb 20, 2009 3:25pm EST

By Pedro da Costa and Kristina Cooke

NEW YORK (Reuters) - The global economy may be deteriorating even faster than it did during the Great Depression, Paul Volcker, a top adviser to President Barack Obama, said on Friday.

Volcker noted that industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.

"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker told a luncheon of economists and investors at Columbia University.

Paul Volcker, former chairman of the Federal Reserve Bank and current chairman of the President's Economic Recovery Advisory Board, speaks at the "Emerging from the Financial Crisis" annual conference at Columbia University in New York, February 20, 2009.

Given the extent of the damage, financial regulations must be improved and enhanced to prevent future debacles, although policy-makers must be cautious not disrupt things further while the turmoil is ongoing.

Volcker, a former chairman of the Federal Reserve famed for breaking the back of inflation in the early 1980s, mocked the argument that "financial innovation," a code word for risky securities, brought any great benefits to society. For most people, he said, the advent of the ATM machine was more crucial than any asset-backed bond.

"There is little correlation between sophistication of a banking system and productivity growth," he said.

He stressed the importance of preventing financial institutions large enough to pose a threat to the entire system from engaging in risky behavior such as running hedge funds or trading for its own accounts.

The current crisis had its beginning in global imbalances like a lack of savings in the United States, but policy-makers around the world were too reticent to take action until it was too late, Volcker said.

Now that the crisis had erupted, it was important to take decisive actions, including a more effective regulatory structure and some movement toward uniform accounting systems, Volcker said.

He said all financial institutions that are deemed too large to fail should be subject to increased scrutiny, echoing the findings of the Group of 30, a panel of policy-makers and influential economists, which he leads.

Reporting by Pedro Nicolaci da Costa and Kristina Cooke; Editing by Tom Hals)

Volker also witnessed the panic of 1837 and says that the current financial crisis is worse than that, too.

 

[Trendytrader]

Protectionism is coming in time. Once civil unrest and unemployment hits double digit numbers pressure on Washington to implement Buy American.

 

[tradersboredom]

volker parents and him lived through the great depression and knows what wall street is and what is is not .

when everybody was making money in the bull market from 1988-2000 nobody wanted gov't regulation as to retrict speculation or more money entering the market for derivatives.

now that the house of cards is over. eveybody wants regulations.

the amount of deregulation from 1982-1997 basically removed all the regulations in 1929 so 80 years of no major crash or lock up(fuck -up) of the financial markets.

the markets are locked up fucked up now. this is global so it's not about trade or protectionist b.s.
my last post.

Quote from ByLoSellHi:

Volcker is older, smarter and wiser than Summers.

There's a reason why many economists speak of the need for future Fed Reserve Chairmen to 'summon their inner Volckers.'

Volcker had balls or cast iron when he broke the spine of rampant, insidious inflation in the late 70s when interest rates were nearly 20%.

 

[ShoeshineBoy]

Quote from jem:

By allowing China to export into us and peg our currency - we financed China's path into the world economy.

China did not become big economic player because we were idiots. We allowed it so that they had a stake in western economy.

Definitely. This was clearly planned since the time of at least Nixon. Didn't mean to imply anything different...

 

[ShoeshineBoy]

Quote from Trendytrader:

Protectionism is coming in time. Once civil unrest and unemployment hits double digit numbers pressure on Washington to implement Buy American.

WSJ has an article today that a bill will probably come soon to put a limit on outsourcing. Infosys and others are actually looking to hire Americans stateside in anticipation of such an event...