The former Fed chairman who saved the US economy from a decade of stagflation, wealth destruction, and horrendous stock-market performance in the 1970s, Paul Volcker, chided the current Fed for bailing out Bear Stearns. He also knocked the performance of another one of his successors, Alan Greenspan, who is currently telling anyone who will listen that he had nothing to do with the country’s mounting economic problems. The NYT:
“Out of perceived necessity, sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank,” Mr. Volcker told members of the Economic Club of New York…
Mr. Volcker also implicitly questioned Mr. Greenspan’s cheerleading of the “bright new financial system,” that “for all its talented participants, for all its rich rewards, has failed the test of the marketplace.”
Meanwhile, the Fed minutes released yesterday show that the Fed is now scared about both a deep recession and inflation, and is increasingly in disagreement about what it should do next:
The dissenters — Richard W. Fisher of the Dallas Fed and Charles I. Plosser of the Philadelphia branch — said that a rate cut would further fuel inflation, which has grown faster than anticipated on the back of high prices for gasoline and food.
Mr. Plosser argued that the Fed “could not afford to wait until there was clear evidence that inflation expectations were no longer anchored, as by then it would be too late to prevent a further increase in inflation pressures.”
At this rate, it will not be long before the current consensus of a “short, mild recession” and “second-half recovery” descends into the realisation that we are, in fact, screwed.
Business Insider Emails & Alerts
Site highlights each day to your inbox.