Paul Volcker Panel Discussion

For the monetary history-challenged, Paul Volcker was the Fed Chairman in the late 70's and 80's who effectively squashed inflation by raising interest rates to all-time highs, effectively inducing a deep recession, but restored faith and confidence in the strength of the USDollar and eventually, the economy itself.  He basically ushered in two decades of the prosperity and one of the most prosperous eras in human history.  He forced America to take its bitter medicine, cleansing itself of soaring inflation and a stagnant economy.

It was the right thing to do, even if painful short-term.  However, today's Fed Chairman Ben Bernanke has no such luxury.  Why?  Because in 1980, the US was the world's biggest creditor.  Raising interest rates meant foreign countries had to pay the US Treasury more in interest payments.  Today, the US is the world's largest debtor--in the history of mankind.  A rise in interest rates would result in America's bankruptcy, as we owe the rest of the world trillions in USDollars.

That's why the Fed is trapped--we face certain bankruptcy and default, and the only solution left is to print more currency, which of course, exacerbates the humongous debt problem.  Printing more fiat currency only delays the inevitable default--it doesn't resolve the structural debt problem.

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Volcker at the 49 minute mark:

“If a gold standard is going to be effective, you’ve got to fix the price of gold and you’ve got to really stick to it.”  Volcker continues, “To get on a gold standard technically now, an old fashioned gold standard, and you had to replace all the dollars out there in foreign hands with gold, God the price, you buy gold, because the price of gold would have to be enormous (atlas-sized touchdown hand signal).”  Volcker goes on to say “Who thinks that would be maintained?” (scoff).  

Volcker continuing from the 50 minute mark:

“The straightforward central banking measures have lost their effectiveness. They have gone as far as they could go.”