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Sunday, 20 September 2009
‘Long way to go’ for full US recovery: Volcker
Paul Volcker, the former Federal Reserve chairman who’s an economic adviser to US President Barack Obama, said there’s a ‘long way to go’ before the economy returns to pre-recession levels.
(LOS ANGELES) Paul Volcker, the former Federal Reserve chairman who’s an economic adviser to US President Barack Obama, said there’s a ‘long way to go’ before the economy returns to pre-recession levels.
‘It will be a long slog - a matter of years - with the risk of some relapses along the way,’ Mr. Volcker said on Wednesday at a financial conference in Beverly Hills, California. While Mr. Volcker said he sees signs that the economy is in the ‘early stages of recovery’, he also warned that ‘it is way too soon to resume business as usual’.
Mr. Volcker’s comments echo Fed chairman Ben S Bernanke’s assessment on Tuesday that while the recession has probably ended, ‘it’s still going to feel like a very weak economy for some time’.
Mr. Volcker, 82, is best known for raising the Fed’s key interest rates as high as 20 per cent as central bank chief from 1979 to 1987. ‘We have a long way to go to get back the point of fully utilising our economic resources and restoring something approximating full employment,’ Mr. Volcker said at a conference hosted by the Association for Corporate Growth, a group for executives who deal with mergers and acquisitions.
At the same time, the economy is seeing ‘some bounce’ from the lows of the downturn, Mr. Volcker added.
Mr. Bernanke made a similar assessment in answering questions after a speech in Washington on Tuesday, saying that unemployment will be slow to shrink if the economy fails to expand at much more than its underlying potential.
In July, the 55-year-old Fed chief, who was nominated for a second term by Mr. Obama, told Congress that projected declines in the jobless rate over the next two years ‘would still leave unemployment well above’ what Fed policy makers prefer in the long run.
Warren Buffett, the billionaire investor who runs Berkshire Hathaway Inc, said separately in an interview shown on Wednesday on CNBC that the US economy has ‘hit a plateau at bottom’. US stocks and yields on the 10-year Treasury note rose for a third day after a Fed report showed output at factories, mines and utilities climbed 0.8 per cent last month.
The unemployment rate reached 9.7 per cent in August, a quarter-century high, and employers have eliminated almost seven million jobs since the recession started, the biggest drop in any post-World War II economic downturn. The economy will rebound at a 2.3 per cent pace next year, according to the median estimate in a Bloomberg News survey of economists.
In his speech, Mr. Volcker renewed his call for a limit on the activities of banks that are considered ‘too big to fail’, going beyond what other officials in the Obama administration have advocated.
‘I do not think it reasonable that public money - taxpayer money - be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial banking organisation,’ Mr. Volcker said.
Since January, Mr. Volcker has advocated that regulators should prohibit financial companies whose collapse would pose a risk to the economy - those considered ‘too big to fail’ - from engaging in certain types of trading and investing activities. The administration wants stricter oversight for such companies and tighter capital and liquidity requirements.
‘Extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking,’ Mr. Volcker noted. ‘Substantial involvement in heavily leveraged finance and heavy proprietary trading almost inevitably entails risks.’
‘I want to question any presumption that the federal safety net, and financial support, will be extended beyond the traditional commercial banking community,’ he said.
In a question-and-answer session after his speech, Mr. Volcker said he backs putting a single agency like the Fed in charge of overseeing the financial system, instead of a committee made up of the heads of different agencies. The Obama administration has proposed giving the Fed oversight of the biggest financial companies, while some top lawmakers prefer a council.
‘I don’t think that function can be fulfilled by a conclave of regulators,’ he said. ‘I do think we need an institution that has clear responsibility for overseeing the financial system.’
2 comments:
‘Long way to go’ for full US recovery: Volcker
Bloomberg
18 September 2009
(LOS ANGELES) Paul Volcker, the former Federal Reserve chairman who’s an economic adviser to US President Barack Obama, said there’s a ‘long way to go’ before the economy returns to pre-recession levels.
‘It will be a long slog - a matter of years - with the risk of some relapses along the way,’ Mr. Volcker said on Wednesday at a financial conference in Beverly Hills, California. While Mr. Volcker said he sees signs that the economy is in the ‘early stages of recovery’, he also warned that ‘it is way too soon to resume business as usual’.
Mr. Volcker’s comments echo Fed chairman Ben S Bernanke’s assessment on Tuesday that while the recession has probably ended, ‘it’s still going to feel like a very weak economy for some time’.
Mr. Volcker, 82, is best known for raising the Fed’s key interest rates as high as 20 per cent as central bank chief from 1979 to 1987. ‘We have a long way to go to get back the point of fully utilising our economic resources and restoring something approximating full employment,’ Mr. Volcker said at a conference hosted by the Association for Corporate Growth, a group for executives who deal with mergers and acquisitions.
At the same time, the economy is seeing ‘some bounce’ from the lows of the downturn, Mr. Volcker added.
Mr. Bernanke made a similar assessment in answering questions after a speech in Washington on Tuesday, saying that unemployment will be slow to shrink if the economy fails to expand at much more than its underlying potential.
In July, the 55-year-old Fed chief, who was nominated for a second term by Mr. Obama, told Congress that projected declines in the jobless rate over the next two years ‘would still leave unemployment well above’ what Fed policy makers prefer in the long run.
Warren Buffett, the billionaire investor who runs Berkshire Hathaway Inc, said separately in an interview shown on Wednesday on CNBC that the US economy has ‘hit a plateau at bottom’. US stocks and yields on the 10-year Treasury note rose for a third day after a Fed report showed output at factories, mines and utilities climbed 0.8 per cent last month.
The unemployment rate reached 9.7 per cent in August, a quarter-century high, and employers have eliminated almost seven million jobs since the recession started, the biggest drop in any post-World War II economic downturn. The economy will rebound at a 2.3 per cent pace next year, according to the median estimate in a Bloomberg News survey of economists.
In his speech, Mr. Volcker renewed his call for a limit on the activities of banks that are considered ‘too big to fail’, going beyond what other officials in the Obama administration have advocated.
‘I do not think it reasonable that public money - taxpayer money - be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial banking organisation,’ Mr. Volcker said.
Since January, Mr. Volcker has advocated that regulators should prohibit financial companies whose collapse would pose a risk to the economy - those considered ‘too big to fail’ - from engaging in certain types of trading and investing activities. The administration wants stricter oversight for such companies and tighter capital and liquidity requirements.
‘Extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking,’ Mr. Volcker noted. ‘Substantial involvement in heavily leveraged finance and heavy proprietary trading almost inevitably entails risks.’
‘I want to question any presumption that the federal safety net, and financial support, will be extended beyond the traditional commercial banking community,’ he said.
In a question-and-answer session after his speech, Mr. Volcker said he backs putting a single agency like the Fed in charge of overseeing the financial system, instead of a committee made up of the heads of different agencies. The Obama administration has proposed giving the Fed oversight of the biggest financial companies, while some top lawmakers prefer a council.
‘I don’t think that function can be fulfilled by a conclave of regulators,’ he said. ‘I do think we need an institution that has clear responsibility for overseeing the financial system.’
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