Keeping at It

Keeping at It

The Quest for Sound Money and Good Government

Book - 2018
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As chairman of the Federal Reserve (1979-1987), Paul Volcker slayed the inflation dragon that was consuming the American economy and restored the world's faith in central bankers. That extraordinary feat was just one pivotal episode in a decades-long career serving six presidents. Told with wit, humor, and down-to-earth erudition, the narrative of Volcker's career illuminates the changes that have taken place in American life, government, and the economy since World War II. He vibrantly illustrates the crises he managed alongside the world's leading politicians, central bankers, and financiers. Yet he first found his model for competent and ethical governance in his father, the town manager of Teaneck, NJ, who instilled Volcker's dedication to absolute integrity and his "three verities" of stable prices, sound finance, and good government.
Publisher: New York : PublicAffairs, 2018.
Edition: First edition.
Copyright Date: ©2018
ISBN: 9781541788312
Branch Call Number: 332.11 VOLCKER
Characteristics: xvi, 286 pages, 8 unnumbered pages of plates : portraits (some color) ; 25 cm
Additional Contributors: Harper, Christine - Author


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Jun 23, 2019

This is a personal as well as a professional memoir, quite different from former Bank of Canada governor John Crow’s “Making Money”, which was all business. While most readers will find this charming, as I did, those interested only in following Volcker’s brilliant professional career may find it annoying.
Volcker stepped down as Chairman of the US Fed in August 1987. So his career as a central banker predated the existence of inflation targets. Unfortunately, his discussion of these targets is simply brutal, although perhaps comprehensible given the idiosyncratic way that an inflation target was introduced by his successor Ben Bernanke in 2012.
Volcker visited New Zealand, the country that introduced inflation targeting, in 1987, shortly after he left office. The book gives the misleading impression that the new regime had already been installed, or was in process. In fact, while the idea was in the air, it was only on April 1, 1988 that Finance Minister Sir Roger Douglas announced in a TV interview that policy would be directed to reducing inflation to 0% to 1% over the next few years. And the first formal Policy Targets Agreement was only signed on February 2, 1990 between Reserve Bank of New Zealand Governor Donald Brash, mentioned in Volcker’s memoir, and the new Finance Minister, David Caygill. It represented a slightly watered down version of Douglas’s goal, declaring a target range of 0% to 2%. So 2% did not represent a point target rate but the upper bound of a target range, and Volcker errs in writing the 2% target rate originated in New Zealand. It actually started in Canada. It was the last of three target rates (3%, 2½% and 2%) negotiated by Finance Minister Michael Wilson and Bank of Canada Governor John Crow in February 1992, with the 2% rate to be achieved by the end of 1995. However, it was just an intermediate target rate to be followed by a lower rate with the next renewal agreement. It only became the indeterminate target rate (although it wasn’t clear at the time) because at the time of the first renewal agreement in December 1995, Governor Crow was unwilling to accept a target rate as high as 1.75% and the new Finance Minister, Paul Martin, was unwilling to accept a target rate as low as 1.5%, Crow’s final offer. The 2% rate was extended past 1995 under a new governor, Gordon Thiessen. Had things gone differently, 1.5% or 1.75% might have emerged as the international standard.
Volcker writes: “ Now…a remarkable consensus has developed among modern central bankers, including the Federal Reserve, that there’s a new red line for policy: a 2 per cent rate of increase in some carefully designed consumer price index is acceptable, even desirable, and at the same time provides a limit.” (Actually, The European Central Bank’s rate is not 2%, but something less than 2%. Arguably, former ECB president Jean-Claude Trichet defined less than 2% as being 1.97%, not a big difference from 2.00%, but still lower.) Pace Volcker, for the US Fed 2% is simply the target rate; it is not a limit or an upper bound. However, it is easy to see the source of his confusion. From January 2010, the month a 2% inflation target was introduced, to April 2019, the most recent month available, the annualized inflation rate has been 1.35%, and from 2013 forward it has only attained or exceeded 2.0% nine times. So 2% really does look more like the upper bound of a target range (unlike the Bank of Canada, the US Fed does not operate with any target range) and not much like a point target. Volcker very ably makes the case against raising the target rate to 3% or 4%, but regrettably does not seem to have thought about reducing the target rate to 1.5% or lower. Two percent inflation, year by year, isn’t really consistent with the quest for sound money to be found in his book’s subtitle.

May 06, 2019

Mostly self-deprecating memoir of his interesting, accomplished career through multiple administrations and historical cycles.


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