An Economy On Thin Ice By Paul A. Volcker

[papau]

http://www.washingtonpost.com/wp-dyn/articles/A38725-2005Apr8.html

An Economy On Thin Ice

By Paul A. Volcker

Sunday, April 10, 2005; Page B07


<snip>yet, under the placid surface, there are disturbing trends: huge imbalances, disequilibria, risks -- call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. What really concerns me is that there seems to be so little willingness or capacity to do much about it.

<snip>We are buying a lot of housing at rising prices, but home ownership has become a vehicle for borrowing as much as a source of financial security. As a nation we are consuming and investing about 6 percent more than we are producing.

What holds it all together is a massive and growing flow of capital from abroad, running to more than $2 billion every working day, and growing. There is no sense of strain. As a nation we don't consciously borrow or beg. We aren't even offering attractive interest rates, nor do we have to offer our creditors protection against the risk of a declining dollar.<snip>


The answer is no. So I think we are skating on increasingly thin ice. On the present trajectory, the deficits and imbalances will increase. At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing world economy could fade. Then some event, or combination of events, could come along to disturb markets, with damaging volatility in both exchange markets and interest rates. We had a taste of that in the stagflation of the 1970s -- a volatile and depressed dollar, inflationary pressures, a sudden increase in interest rates and a couple of big recessions.
<snip>
What I am talking about really boils down to the oldest lesson of economic policy: a strong sense of monetary and fiscal discipline. This is not a time for ideological intransigence and partisan posturing on the budget at the expense of the deficit rising still higher. Surely we would all be better off if other countries did their part. But their failures must not deflect us from what we can do, in our own self-interest.

<snip>

[natrat]

1. what a dork

doesn't he realize these fuckers are wrecking the train on purpose

[Ganja Ninja]

3. Being rich just isn't as much fun if the streets aren't ...

lined with beggars.

[Selteri]

2. The Bush Administration, making the wold better for the few. N/T

[RedEarth]

4. Thanks for the post....I think Volker is right on target...

now we'll need to see if anyone(Bush admin, Dem or Repub senators or reps, media)has the courage to address what Volker is referring to....probably not.

[papau]

5. It must be addressed - too many real economists will scream if not!

:-)

[mhr]

6. I Would Hope. But, I Am Beyond Hope At This Point.

Nice to daydream though!

[teryang]

7. Unwarranted presumption - that the bushists care

They are not acting in good faith. They are frauds and plunderers by profession. As long as they and their corporate base profit, they could care less what happens to everyone else.

A little longer and the middle class baby in the bathtub will be dead. Then they can lord it over us like a bunch of latin American peasants.