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Hyperinflation: Bernanke needs a dose of Volcker

Posted May 16, 2008

“There has not been a chairman of the Federal Reserve Board with sound monetary instincts since Paul Volcker resigned in 1987.” — Lord William Rees-Mogg

by Lord William Rees-Mogg

Baltimore — (TFN): The American electoral system has never been designed to protect sound finance, and it has become more dangerous as the federal government and the Federal Reserve itself have become more skillful at manipulating the economy of the United States. The process of running before every gust of wind reached its limits under Alan Greenspan, who always chose to inflate, rather than deflate, a bubble. His successor, Ben Bernanke, is more cautious, but has made no attempt to reverse the Greenspan policy.

There has not been a chairman of the Federal Reserve Board with sound monetary instincts since Paul Volcker resigned in 1987. It was Volcker who brought the dollar back from the brink of hyperinflation in 1987.

On May 14, Volcker testified before Congress. Scattered around the monetary world, and particularly influential in Europe, there is a group of central bankers who admire Volcker, as I do myself, and share his analysis of the present situation. The Volcker analysis is very similar to that of the European Central Bank, and to that of Mervyn King, the governor of the Bank of England.

Volcker testified that the Fed ought now tackle the threat of inflation more forcefully. He is particularly concerned about the danger of a return to the conditions of “stagflation” of the 1970s. The Bank of England also expects that the next two years will see the pressure of rising inflation combined with low rates of growth. In the 1970s, this unpleasant combination of economic trends resulted from the loose monetary conditions of the early 1970s and the oil shocks of the mid-1970s.

Those who experienced the 1970s were taught a painful lesson about the negative effects of inflation. Read on to learn more.

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Posted by Lord William Rees-Mogg · Filed Under US Stocks and Markets 

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