Gold, The Fed, Exter’s Pyramid – When John Exter Met Paul Volcker

http://www.goldcore.com/us/gold-blog/gold-bullion-the-fed-exters-pyramid-when-john-exter-met-paul-volcker/

Paul Volcker Slams The Fed: "The Kind Of Stuff That You’re Being Taught At Princeton Disturbs Me"

I've always admired Paul Volcker for his candidness--even when he was Fed Chairman.  Because his predecessors and successors are paid puppet liars.

http://www.zerohedge.com/news/2014-06-12/paul-volcker-slams-fed-kind-stuff-you%E2%80%99re-being-taught-princeton-disturbs-me

The responsibility of any central bank is price stability. I was at the helm at that time. Price stability is two percent inflation, which we can’t closely control anyway. They ought to make sure that they are making policies that are convincing to the public and to the markets that they’re not going to tolerate inflation.

The responsibility of the government is to have a stable currency. This kind of stuff that you’re being taught at Princeton disturbs me. Your teachers must be telling you that if you’ve got expected inflation, then everybody adjusts and then it’s OK. Is that what they’re telling you?

Volcker: Fed Faces Tough Job of Removing the Punch Bowl

Former Fed Chairman Paul Volcker is speaking the truth on the difficulty of the Fed reining in stimulus.  It's the politically correct speak for "QE to infinity."  He's saying it--without saying it--because he can't say it.

http://www.moneynews.com/StreetTalk/Volcker-Fed-Punch-Bowl/2013/03/04/id/493013?s=al&promo_code=12A9D-1

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.

http://tradewithdave.com/?p=14381

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.”

John Hathaway - Gold & US Today vs 1980 Mania

This is one of the better intellectually and ideologically insightful pieces on the bullish case for gold--and why 1980 is not 2011. 

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/5/26_John_Hathaway_-_Gold_%26_US_Today_vs_1980_Mania.html

Volcker warns of danger from U.S. deficits

http://www.reuters.com/article/2011/05/07/us-volcker-deficit-idUSTRE74604W20110507

Volcker resigns

As I expected, Volcker will step down as part of President Obama's Economic Recovery Advisory Board.  In my opinion, he was appointed merely as a figurehead to appease those desiring fiscal responsibility, and was considered a voice of reason.  But his views were becoming increasingly marginalized by the financial community who opposed regulation, and he became frustrated as his dire warnings were largely ignored.

http://www.reuters.com/article/idUSTRE70458G20110106 

(Reuters) - Former Federal Reserve Chairman Paul Volcker plans to leave his role as head of a panel of experts advising President Barack Obama on the economy, sources familiar with the decision said on Wednesday.

The departure of Volcker, 83, from the President's Economic Recovery Advisory Board is among a series of changes Obama is planning to announce soon.

The decision to leave the board was Volcker's. A source close to him said he was ready to continue to advise Obama on an informal basis as often as the president would like.

Volcker became a legendary figure on Wall Street when as Fed chief he broke the back of double-digit U.S. inflation in the early 1980s by sharply raising interest rates.

He began advising Obama during his 2008 presidential campaign and has wielded clout on issues ranging from financial regulation to fiscal policy.

Unique among people who offer economic counsel to Obama from the outside, Volcker has a direct line to the president and does not need to go through the White House economic team to schedule a meeting or a phone call.

But there have been moments of awkwardness for him. Volcker frequently delivers speeches to policy and business audiences, and it has been frustrating for him that when he comments publicly on issues like a value-added tax, his presidential advisory board role has sometimes led people to mistakenly assume he is speaking on behalf of the White House.

The White House declined to comment on Volcker's exit. The formal announcement of Volcker's departure is likely to come on Friday when Obama will unveil a number of other changes to his economic team.

The former central banker was the driving force behind the "Volcker Rule," a provision in last year's financial reform bill that puts limits on proprietary trading by U.S. banks.
Many on Wall Street vigorously fought the Volcker Rule and some sought to portray Volcker as out of touch with the modern financial system. But he has also received credit for reining in financial industry excesses that helped prompt the global economic crisis.

"VOICE OF REASON"

"My feeling is job well done," said Thomas Russo, a partner in Gardner Russo & Gardner, a Pennsylvania investment manager with assets under management of $2.38 billion.

"He was a voice of reason as he addressed excesses that inevitably develop in Wall Street conduct when the guardrails are taken down from the financial superhighway."

Obama also plans to make an announcement on a replacement for Larry Summers, who stepped down as director of the National Economic Council to return to his role on the faculty of Harvard University.

Gene Sperling, a senior U.S. Treasury official, is the frontrunner to take the helm at the economic council, which coordinates advice to the president throughout the administration.

Obama created the economic recovery panel as a means of getting outside advice from experts in business, labor and academia when the economy was in a tailspin. Tax reform and economic competitiveness are among the issues it has weighed in on.

Obama, who has been trying to mend frayed ties with the business community, is considering whether to shift the focus of the economic panel to one that has a greater focus on business outreach.

Volcker will leave the panel in early February.

Some people viewed as possible replacements for Volcker include Yale University's Richard Levin and Jim Owens, who retired in October as chairman of Caterpillar Inc.

Wall Street is closely watching as regulators put more flesh on the bones of the curbs on proprietary trading that threaten billions of dollars in Street profits.

Bank of America (BAC.N), Morgan Stanley (MS.N), and Goldman Sachs (GS.N) have backed out of or scaled back their proprietary trading and private equity businesses in anticipation of the Volcker rule roll-out.

Volcker Says Dollar's Role in Danger as U.S. Influence Declines Globally

http://www.bloomberg.com/news/2010-12-01/volcker-says-dollar-s-global-role-is-in-danger-as-u-s-influence-declines.html

Volcker spares no one in broad critique

http://blogs.wsj.com/economics/2010/09/23/volcker-spares-no-one-in-broad-critique/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Feconomics%2Ffeed+%28WSJ.com%3A+Real+Time+Economics+Blog%29

Former Federal Reserve Chairman Paul Volcker scrapped a prepared speech he had planned to deliver at the Federal Reserve Bank of Chicago on Thursday, and instead delivered a blistering, off-the-cuff critique leveled at nearly every corner of the financial system.

Standing at a lectern with his hands in his pockets, Volcker moved unsparingly from banks to regulators to business schools to the Fed to money-market funds during his luncheon speech.

He praised the new financial overhaul law, but said the system remained at risk because it is subject to future “judgments” of individual regulators, who he said would be relentlessly lobbied by banks and politicians to soften the rules.

“This is a plea for structural changes in markets and market regulation,” he said at one point.

Here are his views on a variety of topics.

1) Macroprudential regulation — “somehow those words grate on my ears.”

2) Banking — Investment banks became “trading machines instead of investment banks [leading to] encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system.”

3) Financial system — “The financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.”

4) Business schools — “We had all our best business schools in the United States pouring out financial engineers, every smart young mathematician and physicist said ‘I don’t want to be a civil engineer, a mechanical engineer. I’m a smart guy, I want to go to Wall Street.’ And then you know all the risks were going to be sliced and diced and [people thought] the market would be resilient and not face any crises. We took care of all that stuff, and I think that was the general philosophy that markets are efficient and self correcting and we don’t have to worry about them too much.

5) Central banks and the Fed — “Central banks became…maybe a little too infatuated with their own skills and authority because they found secrets to price stability…I think its fair to say there was a certain neglect of supervisory responsibilities, certainly not confined to the Federal Reserve, but including the Federal Reserve, I only say that because the Federal Reserve is the most important in my view.”

6) The recession — “It’s so difficult to get out of this recession because of the basic disequilibrium in the real economy.”

7) Council of regulators — “Potentially cumbersome.”

8) On judgment — “Let me suggest to you that relying on judgment all the time makes for a very heavy burden whether you are regulating an individual institution or whether you are regulating the whole market or whether you are deciding what might be disturbing or what might not be disturbing. It’s pretty tough and it’s subject to all kinds of political and institutional blockages as well.”

9) On procyclicality — “It’s the hardest thing as a regulator in my opinion…when things are really going well, the economy is going well, the market is not disturbed, but you see developments in an institution or in markets that is potentially destabilizing, doing something about it is extremely difficult. Because the answer of the people in the markets is, ‘what are you talking about? Things are going really well. We know more about banking and finance than you do, get out of my hair, if you don’t get out of my hair I’m going to write my congressman.’”

10) Risk management — “Markets that are prone to excesses in one direction or another are not simply managed under the assumption that we can assume that everybody follows a normal distribution curve. Normal distribution curves — if I would submit to you — do not exist in financial markets. Its not that they are fat tails, they don’t exist. I keep hearing about fat tails, and Jesus, it’s only supposed to occur every 100 years, and it appears every 10 years.”

11) Derivatives — “I’ve heard so many stories about how important” derivatives are but “there doesn’t seem to be much doubt that the creation of derivatives has far exceeded any pressing need for hedging.”

12) Money market funds — “Money market funds have encroached so much on the banking market. They are nothing, in my view, but a regulatory arbitrage. The purpose that they serve in handling payments and short term paper is a commercial banking function” but they don’t hold the capital or face the regulation of banks.

13) The Fed and Dodd-Frank — Volcker said it was a “miracle” that despite all the criticism aimed at the Fed the central bank “came out with enhanced regulatory authorities rather than reduced regulatory authorities.”

Volcker believes Euro could disintegrate

http://www.bloomberg.com/apps/news?pid=20601087&sid=aG.VRgw_7PqA&pos=5

Former Federal Reserve Chairman Paul Volcker said he’s concerned that the euro area may break up after the Greek fiscal crisis that sparked an unprecedented bailout by the region’s members.

“You have the great problem of a potential disintegration of the euro,” Volcker, 82, said in a speech in London yesterday. “The essential element of discipline in economic policy and in fiscal policy that was hoped for” has “so far not been rewarded in some countries.”

Volcker says let 'em fail

Paul Volcker, former Fed Chairman and current adviser to President Obama, told the Senate Banking Committee that hedge funds and private equity funds should be allowed to profit and fail on their own, without government support.

Which is how capitalism should work, and hence, sound policy. The problem is that charities, foundations, schools, churches, states, and municipalities who speculated in over-the-counter (OTC) derivatives will go bankrupt when these toxic assets sink in value. Why exactly did these entities "invest" in these swaps? Who was minding the fence?

http://www.bloomberg.com/apps/news?pid=20601103&sid=axxnPYqTocfY

The White House / Wall Street circle jerk

Pardon my Goldman Sachs French, but this would be theatre of the absurd, if it wasn't so tragic to our livelihood.

http://www.bloomberg.com/apps/news?pid=20601039&sid=a5ybwwGkJJXw

Is Gold manipulated?

Let's ask some former central bankers themselves:

Alan Greenspan, at a testimonial at a 1998 House Banking Committee hearing:

Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.

From the Complaint in Howe v. Bank for International Settlements, et al., United States District Court for Massachusetts, No. CV-00-12485-RCL (www.goldensextant.com/...): The reaction of the Fed and other central banks to the sharp rally in gold prices triggered by announcement of the so-called "Washington Agreement on Gold" in September 1999, as described by Edward A. J. George, Governor of the Bank of England and a director of the BIS, to Nicholas J. Morrell, then Chief Executive of Lonmin Plc, a principal shareholder in Ashanti Goldfields Ltd. (paragraph 55):

We looked into the abyss if the gold price rose further . A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K.

From Chairman Greenspan's letter to Senator Joseph I. Lieberman, Connecticut, dated January 19, 2000, elaborating upon the foregoing testimony:

This observation simply describes the limited capacity of private parties to influence the gold market by restricting the supply of gold, given the observed willingness of some foreign central banks -- not the Federal Reserve -- to lease gold in response to price increases.

Paul Volcker on the 1970's gold bull market:

Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.

Here's a quote from the economist John Maynard Kaynes (even though I don't agree with Keynesian economics, I agree with this quote):

Markets can be irrational longer than you can remain solvent.

Former Federal Reserve comments

Bill Poole, former head of the St. Louis Fed, said: "We are very vulnerable to an inflation explosion."

And Paul Volcker, former Fed Chairman, warned: "The [Bernanke] Fed is telling people... they're going to be losing half their purchasing power."