I.O.U.S.A - Addison Wiggin [80]
For instance, you can argue that the infl ationary pressure has encouraged OPEC to increase the oil price, and the increase in oil prices led to infl ation, or more infl ation. So we got into a discouraging passivity and cycle of poor economic performance and infl ation. And I think they were related.
Q: The popular press also tells the story of how you came in and raised interest rates in order to slay infl ation. I even noticed you have the famous painting out in the hallway of you with a shield, fi ghting off infl ation. Can you just tell us how it felt to be in that position, and also describe what was c12.indd 163
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164 The
Interviews
really happening rather than the popular portrayal expressed in that painting?
Paul Volcker: When I became chairman of the Federal Reserve, I think there was a general feeling in this country that economic affairs, and infl ation in particular, had reached a kind of crisis point. Things were not going very well. There was a feeling of uncertainty. There was a lot of speculation in commodities and the gold price, which was then free to fl uctuate up to $ 800 an ounce. In an odd kind of way, that ’ s a good time to step into a job because people thought that something needed to be done.
I also think the mood of the country was willing to accept action, which 10 years earlier they wouldn ’ t have been willing to accept.
And once we got caught up and I got caught up — or the Federal Reserve Board got caught up, for that matter the country got caught up — in an anti - infl ationary effort, there was a certain willingness to take very high interest rates and eventually a rather severe recession, with the hope and expectations — certainly, the expectation that I had — that things would get better. And if we could restore any sense of stability in the currency, the country would be better off as long as we sustained that phase.
Q: Would it be fair to say that in that era the high interest rate was the tough medicine?
Paul Volcker: No. There was a lot of opposition and concern, understandably. It was a bad recession, but I think there was this underlying core that the country had not been on the right path economically and that it needed to be shaken up in order to restore stability. And that faith not only sustained me, it sustained the country.
Q: What do you feel were your proudest achievements? If you were able to restore stability, how did that come about?
Paul Volcker: Well, it ’ s not a question, of course, of me achieving stability and sustaining stability. It was a situation in the country as a whole that a stronger approach was acceptable and that we have a Federal Reserve Board and a government who ’ s all in.
Although it was controversial — I don ’ t want to minimize the c12.indd 164
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Paul A. Volcker 165
controversy — there was a basic core of support and willingness to do it. And I think one of the lessons of the early ‘ 80s is don ’ t let infl ation get started, because once it gets some momentum it ’ s very diffi cult to deal with, but it ’ s also destructive for economic growth and prosperity. That lesson is also important today.
I repeat it all the time ad nauseam: Don ’ t let infl ation get out of control and build a kind of momentum that ’ s inevitable. If that happens — and right now it seems like there is a little fl avor of it — we will all fi nd ourselves back in the days of stagfl ation and unacceptable economic performance.
Q: Do you feel like that the policies that are in place are reactive enough now?
Paul Volcker: Well, right now we are in a very diffi cult circumstance. We are in a fi nancial world with lot of excess spending and lending, particularly in the infamous subprime mortgages. These many excesses put a lot of pressure on economic institutions. The question becomes, how much pressure will they put on the economy as a whole? In the past 20 years, we have had a very good run of economic activity and a lot of success in the fi nancial world. But now we have reached a point