Word: volckerism
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Greenspan admitted that it would be a "major challenge to fill Volcker's shoes." By law, the activities of the Fed are insulated from White House or congressional interference, but Volcker's imposing presence (he is 6 ft. 7 in.) and his supremely assertive stance have over the years added more substance and clout to the Fed's famed independence. Indeed, in many foreign capitals, Volcker has been viewed as virtually the sole guarantee of sound American monetary policies, immune to political pressure. One commentator went so far last week as to describe him as a "financial demigod...
...successor, whose confirmation by the Senate should encounter no serious obstacles, also enjoys widespread respect in international economic circles, though he has no central bank experience. Moreover, his economic views are cut from essentially the same conservative, anti-inflationary fabric as Volcker's. As a Republican who has already served one Republican President, however, Greenspan is bound to face increasing pressure to bend his actions to political ends as the 1988 presidential election draws nearer. Indeed, some Administration critics argued last week that Greenspan's surprise appointment already amounted to just such political meddling. Said Pierre Rinfret, a former Nixon...
Verbal reaction followed the same down- and upbeat course. Nihon Keizai Shimbun, Tokyo's respected business daily, headlined an editorial VOLCKER'S RESIGNATION IS VERY REGRETTABLE. But Takeshi Ohta, deputy governor of Japan's central bank, said with evident satisfaction, "Mr. Greenspan is the best successor that the President could have chosen." British Chancellor of the Exchequer Nigel Lawson called Greenspan's appointment an "excellent choice." In the U.S., where Greenspan is much better known, most economic thinkers and money managers hailed the Fed newcomer -- once they had regretted Volcker's departure. Said Frederick Joseph, chief executive officer...
...counts equally with those of the other governors. But in practice the board has traditionally tended to follow the lead of the chairman. In the past, figures like William McChesney Martin Jr. (chairman from 1951 to 1970) and Arthur Burns (1970 to 1978) have become nationally renowned monetary policymakers. Volcker may have earned an even mightier reputation for bringing the inflation rate down from 13.3% in 1979, the year he was appointed, to 1.1% in 1986. He consistently managed to persuade the other Fed governors to go along with tough and often unpopular policies. His skills with the board...
Another reason for Volcker's status, though, was the absence of any coherent U.S. fiscal policy during most of his tenure. While he presided at the Fed, the U.S. growing budget deficit steadily ballooned, eventually reaching a record $221 billion last year. This year the deficit is expected to shrink only to a still terrifying $175 billion. Volcker's great contribution has been to ensure that the Fed did not crank up the U.S. money supply -- and thus fuel inflation -- to accommodate the budget gap. Instead, the deficits have increasingly been financed by foreigners, chiefly Japanese, who in turn have...