Pulse: Monetary Policy
Of all my memories of Paul Volcker – I first met him in the early 1970s when we was UnderSecretary for Monetary Affairs at the US Treasury and I was editing The Banker – four are particularly persistent:
The passing of legends prompts renewed consideration of their achievements and, of times, conjures not-so-favorable comparisons to their successors. Paul Volcker, who died at 92 this week, set the standard for bold monetary policy as Fed chairman from 1979 to 1987. Taking the helm amid stubbornly high and rising inflation and lackluster trend real growth, he faced the Federal Reserve’s greatest challenge since the Great Depression. Like that earlier episode, bad decisions by his predecessors had created much of the crisis.
In 1919 John Maynard Keynes wrote the first best-seller in economics, The Economic Consequences of the Peace. The title is a bit misleading, since it is really about the cost of war. He railed against the Treaty of Versailles, correctly predicting that inequitable conditions of peace made another world war inevitable.
The Trump administration’s zero-sum approach to international relations is now spilling over from trade to currency wars. After spending the best part of his 2016 campaign and the first three years of his presidency railing against foreign countries taking advantage of the United States on trade, Trump and his administration have started complaining in the past few months about currency manipulation. In doing so, it is bringing us back to the 1990s, or even the 1930s.
Our podcast this week features an interview with James Bianco , market-savvy macro-economic analyst and head ofBianco Research here in Chicago. He shares his thoughts about the Fed, markets, the long-lost world of stock picking, and the role of cryptocurrencies as a new monetary regime unfolds.
EconVue is about the Gettier Problem which to simplify means that just because one is justified in drawing a conclusion, doesn’t mean that it is true. For example, we certainly could be justified in thinking that racial hatred has increased in the US based on media and news reports. However, a fascinating University of Pennsylvania study says that this isn’t true, and that actually racial prejudice has been declining.