Word: volckerism
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...risks, according to U.S. Federal Reserve Chairman Paul Volcker, are "without precedent in the postwar world." Says British Financier Lord Lever: "The banking system of the Western world is now dangerously overexposed. If lending abruptly contracts, there will be an avalanche of large-scale defaults that will inflict damage on world trade and on the political and economic stability of both borrowing and lending countries." The financial community, says Rimmer de Vries, chief international economist of New York's Morgan Guaranty Trust Co., is "in a historic period. There is a lot of worry that things could...
...surprisingly, those advocating renewed lending have become more vociferous, among them Regan, Volcker and IMF Managing Director Jacques de Larosiére. Former U.S. Secretary of State Henry Kissinger told a bankers' convention in Atlanta last October that "new loans must be in excess of [the borrowing countries' existing] interest payments to allow these countries to keep growing." In Western Europe, the central banks are doing more than talk: many are pressing smaller lenders to produce the new loans. In the U.S., Volcker is trying to do the same thing in a different way. He wants new loans...
...diplomat: "They balked at paying a service fee on the money. They said they were seeing imperialism in action and threatened to take the next plane home. That would have meant default." In the end, the U.S. conceded. During the Brazil operation, a New York banker roused Volcker out of his sleep one night to plead for a $500 million Federal Reserve contribution to that salvage attempt. Volcker came up with the money. In either case, there was no margin for failure...
...midsummer, business failures had escalated alarmingly, the stock market had slumped to its lowest level in more than two years and fears of international financial collapse were spreading. Against this backdrop, Volcker hinted that he was prepared to act more flexibly, to permit monetary growth "somewhat above" the announced targets. Several quick cuts by the Fed in its discount rate to member banks drove home the point. As the money supply expanded and interest rates fell, Wall Street bought Volcker's act. Beginning in August, the Dow Jones industrial average staged a 288-point rally that peaked in early November...
Toward year's end, with the money supply growing at a superheated annual rate of more than 16%, critics argued that Volcker should slow the pace. When a Congressman tried to pin him down on what course he would take in 1983, the Fed chief made it clear he was no dogmatist: "You're saying, 'For God's sake, give us a simple rule that you can follow!' And I'm afraid I'm suspicious of any rule that is that simple.' It is not even certain that Volcker will be chairman of the Fed beyond next August, when...