Paul Volcker

For more information on Paul Adolph Volcker, visit Britannica.com.

As chairman of the Federal Reserve Board during one of the most turbulent periods in U.S. monetary history, Paul Volcker (born 1927) helped lower double-digit inflation rates in the early 1980s and ushered in an era of financial deregulation and innovation.

Paul Adolf Volcker was born in Cape May, NJ, on September 5, 1927. His father was city manager of Teaneck, NJ, and turned the town from bankruptcy to solvency. After graduating summa cum laude from Princeton University in 1949, Volcker attended Harvard University's Graduate School of Public Administration, earning a masters degree in political economy and government in 1951. The following year he did postgraduate work at the London School of Economics as a Rotary fellow. During summers Volcker worked at the Federal Reserve Bank of New York, and in 1952 he joined the staff there as a full-time economist.

Volcker left the Federal Reserve Bank of New York in 1957 to become a financial economist with Chase Manhattan Bank. In 1962 he joined the U.S. Treasury Department as director of financial analysis, and in 1963 he became deputy under secretary for monetary affairs. Volcker returned to Chase Manhattan Bank as vice-president and director of planning in 1965. In 1969 he was appointed under secretary of the U.S. Treasury for monetary affairs and remained there until 1974, engaging in international negotiations on the introduction of floating exchange rates. The following year he became a senior fellow in the Woodrow Wilson School of Public and International Affairs at Princeton University. In 1975 Volcker became the president of the Federal Reserve Bank of New York, the most important bank in the Federal Reserve System.

Economic Leader

During the more than 30 years Volcker worked in and out of the federal government he developed an expertise in monetary economics and served under three presidents. The cigar-chomping Volcker, admired for his dedication and commitment by friends and foes alike, appeared implacable and unflappable with his six-foot-seven inch frame. In 1979 he was nominated by President Jimmy Carter to fill the most powerful economic seat in government - chairman of the Federal Reserve Board (the Fed). An act of Congress in 1913 had established the independent Central Bank to create money, regulate its value, and maintain the stability of the financial system through 12 regional banks. When Volcker took over in August of 1979, inflation was running over 13 percent a year, the value of the dollar was falling, and financial markets were concerned about renewed inflation. Volcker's appointment to a four-year term as chairman calmed those fears and was greeted with acclaim in the financial community. As Volcker recalled in a 1989 Time magazine interview: "The [Carter] Administration had got deeply concerned. They said to me they were scared of this exploding inflation and were willing to stand still for stronger measures than would ordinarily be the case. And that is a great advantage. If you can walk into a situation that is felt to be so severely out of kilter, you have greater freedom of action."

The chairman of the Fed also oversees the 12-member Federal Open Market Committee (FOMC), which decides the conduct of U.S. monetary policy. During 1979 and 1980 the FOMC, under Volcker's leadership, sought to reign in double-digit inflation by setting strict money supply growth targets. This direction was in opposition to past policies that sought to control interest rates at the expense of higher money supply growth rates. The result of the switch in policy was a substantial rise in interest rates, with the prime rate peaking at 21.5 percent in December 1980. With higher interest rates, the economy fell into the worst recession in 40 years, causing unemployment to reach 10.7 percent in 1982. During this period, Volcker was widely criticized. The cover of a building trade publication carried a "WANTED" poster of Volcker and his Fed colleagues, accusing them of "premeditated and cold-blooded murder of millions of small businesses." The economic crisis led the FOMC to abandon strict adherence to monetary targets in 1982, but not before the rate of inflation had fallen to below four percent.

The hard-line actions of the FOMC drew criticism from those who felt the price exacted to cure inflation was too high. The crisis raised questions in Congress about whether the "independence" of the Fed should be rescinded. Nevertheless, Volcker was reappointed by President Reagan in August 1983 to a second four-year term as Federal Reserve chairman and was confirmed by the Senate in an 84-16 vote.

From Villain to Hero

Volcker studiously avoided taking rigid ideological positions with regard to monetary policy, preferring a more flexible and discretionary approach. In addition to fighting inflation, Volcker presided over the Central Bank in an era in which control of the money supply was greatly complicated due to the deregulation of the financial industry in 1980. This resulted in large-scale shifts in deposits between different types of accounts, causing unpredictable changes in the rate of growth of money.

Volcker also successfully defended the Fed's oversight powers in banking regulation that were threatened by proposals to streamline the regulatory process. He argued that in order to fulfill the Fed's role of "lender of last resort" to financially troubled banks, the Fed must maintain day-today regulation over those banks, along with the U.S. comptroller of the currency. At the end of his second term in 1987 Volcker became a consultant to various financial institutions, including the World Bank.

"For eight years, as chairman of the Federal Reserve Board, Paul Volcker was perhaps the second most powerful man in Washington," noted Lawrence Malkin in Time (January 23, 1989). "There were no doubt times, as he squeezed the money supply and cost people jobs in his battle against double-digit inflation, when he was also one of the most unpopular." Volcker's moves had tremendous impact on the nation's economy and were watched worldwide. "He is the most revered economic leader of his era," Stephen Koepp noted in Time on June 15, 1987. "He had profound impact on a $4.3 trillion economy but lived in a tiny $500-a-month apartment furnished with castoffs. He ran his agency in a notably serene and straightforward style, and still his mystique grew so potent that his every move sent global financial markets into spasmodic guessing games about what he was thinking." After he had tamed the inflation rate and turned the economy around in the mid-1980s, he became a sort of folk hero.

Volcker, who took a substantial cut in salary to head the Fed, received numerous awards, including One of Ten Outstanding Young Men in Federal Service (1969) and the Alexander Hamilton Award for his efforts at implementation of flexible exchange rates while at the Treasury Department during the early 1970s. He received honorary degrees from a number of institutions, including Notre Dame, Princeton, Dartmouth, New York University, Fairleigh Dickinson, Bryant College, Adelphi, and Lamar University.

Volcker's first job after leaving government in 1987 was as unpaid chairman of the National Commission on the Public Service, a private group working on behalf of the nation's civil servants. He soon became chairman of the New York investment banking firm James D. Wolfensohn, earning a large salary for the first time in his life, and continued to be a respected commentator on the nation's financial affairs in the 1990s.

Further Reading

Some of Volcker's lectures on the workings of the economy are found in Paul Volcker, The Rediscovery of the Business Cycle (1978). For further details on the operation of the Fed, see U.S. Board of Governors, The Federal Reserve System: Purposes and Functions (7th edition, 1984); Maxwell Newton, The Fed (1983); and Paul De Rosa and Gary H. Stern, In the Name of Money (1981). For a good historical look at the Fed's role in the fight against inflation in the early 1980s see Lawrence S. Ritter and William L. Silber, Principles of Money, Banking, and Financial Markets (5th edition, 1985) and William Melton, Inside the Fed Making Monetary Policy (1985). In 1992, Volcker and Toyoo Gyohten published Changing Fortunes: The World's Money and the Threat to American Leadership (1992), based on a series of lectures they gave at Princeton's Woodrow Wilson School.

Quotes:

"If you don't have some bad loans you are not in business."

Paul Volcker
1st Chair of the President's Economic Recovery Advisory Board
Incumbent
Assumed office  February 6, 2009[1]
President	Barack Obama
12th Chairman of the Federal Reserve
In office August 6, 1979 – August 11, 1987
President	Jimmy Carter Ronald Reagan
Preceded by	G. William Miller
Succeeded by	Alan Greenspan
5th President of the Federal Reserve Bank of New York
In office May 2, 1975 – August 5, 1979
Preceded by	Alfred Hayes
Succeeded by	Anthony M. Solomon
Born	September 5, 1927 (1927-09-05) (age 82) Cape May, New Jersey
Political party	Democratic
Alma mater	Princeton University Harvard University London School of Economics
Profession	Economist

Paul Adolph Volcker (born September 5, 1927) is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan (from August 1979 to August 1987). He is currently chairman of the newly formed Economic Recovery Advisory Board under President Barack Obama.^[2]

Contents 1 Early life 2 Career 2.1 Chairman of the Federal Reserve 3 Post-Fed 4 Personal life 5 See also 6 References 7 Further reading 8 External links

Early life

Volcker was born in Cape May, New Jersey and grew up in Teaneck, New Jersey, where his father was the township's first Municipal manager. Volcker graduated from Teaneck High School.^[3]

Volcker's undergraduate education was at Princeton University; he graduated in 1949. He earned his M.A. in political economy from Harvard University's Graduate School of Arts and Sciences and Graduate School of Public Administration in 1951 and then attended the London School of Economics from 1951 to 1952 as a Rotary Foundation Ambassadorial Fellow.

Volcker has received honorary degrees from several educational institutions including: Hamilton College (1980),University of Notre Dame, Princeton University, Dartmouth College, New York University, University of Delaware,^[4] Fairleigh Dickinson University, Bryant College, Adelphi University, Lamar University, Bates College (1989), Fairfield University (1994), Northwestern University (2004), Rensselaer Polytechnic Institute (2005), Brown University (2006), Georgetown University (2007). Union College (2009)^{[citation needed]}, and Queen's University at Kingston in Canada (2009).

Career

In 1952 he joined the staff of the Federal Reserve Bank of New York as a full-time economist. He left that position in 1957 to become a financial economist with the Chase Manhattan Bank. In 1962 he joined the U.S. Treasury Department as director of financial analysis, and in 1963 he became deputy under-secretary for monetary affairs. He returned to Chase Manhattan Bank as vice president and director of planning in 1965.

From 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions surrounding the U.S. decision to suspend gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system. In general he acted as a moderating influence on policy, advocating the pursuit of an international solution to monetary problems. After leaving the U.S. Treasury, he became president of the Federal Reserve Bank of New York from 1975 to 1979, leaving to take up the chairmanship of the Federal Reserve in August 1979.

In 1975, Mr. Volcker also became a senior fellow in the Woodrow Wilson School of Public and International Affairs at Princeton University.

Chairman of the Federal Reserve

Paul Volcker, a Democrat,^[5] was appointed Chairman of the Federal Reserve in August 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan.^[6]

Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.

The federal funds rate, which had averaged 11.2% in 1979, was raised by Volcker to a peak of 20% in June 1981. The prime rate rose to 21.5% in '81 as well.^[7]

These changes in policy contributed to the significant recession the U.S. economy experienced in the early 1980s, which included the highest unemployment levels since the Great Depression. Volcker's Fed also elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of the high interest rates on the construction and farming sectors, culminating in indebted farmers driving their tractors onto C Street NW and blockading the Eccles Building.^[8]

Nobel laureate Joseph Stiglitz said about him in an interview:

Paul Volcker, the previous Fed Chairman known for keeping inflation under control, was fired because the Reagan administration didn't believe he was an adequate de-regulator. .^[9]

Post-Fed

After leaving the Federal Reserve in 1987, he became chairman of the prominent New York investment banking firm, J. Rothschild, Wolfensohn & Co., a corporate advisory and investment firm in New York, run by James D. Wolfensohn, who was later to become president of the World Bank.

In April 2004, the United Nations assigned Volcker to research possible corruption in the Iraqi Oil for Food program. In the report summarising its research, Volcker criticized Kojo Annan, son of UN Secretary-General Kofi Annan, and the Swiss company Cotecna Inspection SA, Kojo's employer, for trying to conceal their relationship. He concluded in his March 2005 report that "there is no evidence that the selection of Cotecna in 1998 was subject to improper influence of the Secretary General in the bidding or selection process".^[10] However, while Volcker did not implicate the Secretary General in the selection process, he did cast serious doubt on Kofi Annan, whose "management performance...fell short of the standards that the United Nations Organization should strive to maintain."^[11] Volcker was a director of the United Nations Association of the United States of America between 2000 and 2004, prior to his being appointed to the Independent Inquiry by Kofi Annan.

As of October 2006, he is the current Chairman of the Board of Trustees of the influential Washington-based financial advisory body, the Group of Thirty, and is a member of the Trilateral Commission. He has had a long association with the Rockefeller family, not only with his positions at Chase Bank and the Trilateral Commission, but also through membership of the Trust Committee of Rockefeller Group, Inc. (RGI), which he joined in 1987. That entity managed, at one time, the Rockefeller Center on behalf of the numerous members of the Rockefeller clan. He currently serves as Chairman of the Board of Trustees of the International House in Manhattan, NY. He was a founding member of the Trilateral Commission and is a long time member of the Bilderberg Group.

In January 2008, he endorsed Democratic Presidential Candidate Barack Obama for President.^[12]

On April 8, 2008, he was the featured speaker at "The Economic Club of New York" and spoke about the issues and causes of the 2008 US recession, and critiqued the 2008 US financial system and the 2008 Federal Reserve policies.^[13]

He is today an economic advisor to President Barack Obama.^[14][15] Mr. Volcker heads the President's Economic Recovery Advisory Board.^[16]

Personal life

As a child, Volcker attended his mother's Lutheran church, while his father went to his Episcopal church. Volcker married Barbara Bahnson, the daughter of a physician, on September 11, 1954. She died on June 14, 1998, having suffered from lifelong diabetes, as well as rheumatoid arthritis. They had two children, Janice, a nurse and a Georgetown University graduate,^[17] and James, a research assistant and a New York University graduate^[18] who was born with cerebral palsy, as well as four grandchildren.^[19][20][21]

Volcker is an avid fly-fisherman, having recounted, "The greatest strategic error of my adult life was to take my wife to Maine on our honeymoon on a fly-fishing trip."^[22][23] Volcker is also known as "Tall Paul" for his height of 6 feet 7 inches (2.01 m),^[24][25] standing exactly a foot (30 cm) taller than his wife when they first met.^[19]

See also

• List of U.S. political appointments that crossed party lines

References

1. ^ Obama Announces Economic Advisory Board
2. ^ "Obama Names Volcker to Head New Economic Panel" http://thecaucus.blogs.nytimes.com/2008/11/26/obama-plans-to-name-volcker-as-head-of-new-economic-panel/?hp], Accessed November 26, 2008.
3. ^ Treaster, Joseph B. "Paul Volcker: The Making of a Financial Legend", Accessed July 6, 2007. "Donald W. Maloney, another Teaneck High School graduate, entered Princeton along with Volcker. Although they had been in the same homeroom at Teaneck High for several years and had been high achievers, they had not been especially close."
4. ^ http://www.udconnection.com/honorary-degrees
5. ^ The main philosophical difference between Mr. Volcker, a Democrat, and Mr. Greenspan, a Republican, appears to be in their views on the structure and regulation of the banking system. Robert D. Hershey Jr., "Volcker Out after 8 Years as Federal Reserve Chief; Reagan Chooses Greenspan", New York Times (June 3, 1987)
6. ^ Paul A. Volcker - Council on Foreign Relations
7. ^ buyandhold.com
8. ^ Shull, Bernard. 2005. The Fourth Branch: The Federal Reserve's Unlikely Rise To Power And Influence. Praeger/Greenwood. ISBN 1567206247. p. 142.
9. ^ Gardels, Nathan. Stiglitz: The Fall of Wall Street Is to Market Fundamentalism What the Fall of the Berlin Wall Was to Communism, The Huffington Post, September 16, 2008. Accessed September 27, 2009.
10. ^ Independent Inquiry Committee into the United Nations Oil-for-Food Programme - Second Interim Report (29 March 2005) p.77
11. ^ Traub, James. 2006. The Best Intentions: Kofi Annan and the UN in the Era of American Power. Picardor/New York. p. 420.
12. ^ Calmes, Jackie (2008-01-31). "Volcker Joins List of Obama Backers". Washington Wire (The Wall Street Journal). http://blogs.wsj.com/washwire/2008/01/31/volcker-joins-list-of-obama-backers/. Retrieved 2008-07-18. 
13. ^ The Economic Club of New York: 8 April 2008 Transcript 101st Year, 395th Meeting, (8 April 2008) p.2, and pp.5-8
14. ^ Kudlow, Lawrence, "Where's Bernanke's Inner Volcker?" Townhall.com (June 27, 2008)
15. ^ Transcript of Third Presidential Debate, October 15, 2008. http://elections.nytimes.com/2008/president/debates/transcripts/third-presidential-debate.html
16. ^ "President-elect Barack Obama establishes President’s Economic Recovery Advisory Board" change.gov
17. ^ "Janice Volcker Is Married". The New York Times (The New York Times Company). 1981-09-20. http://query.nytimes.com/gst/fullpage.html?res=9E03E1D61739F933A1575AC0A967948260. Retrieved 2008-07-18. 
18. ^ "WEDDINGS; Martha DeJong and James Volcker". The New York Times (The New York Times Company). 1993-08-01. http://query.nytimes.com/gst/fullpage.html?res=9F0CE1D81F31F932A3575BC0A965958260. Retrieved 2008-07-18. 
19. ^ ^{a b} Treaster, Joseph B. (2004-04-27). Paul Volcker: The Making of a Financial Legend. New York: John Wiley and Sons. pp. 83, 86, 110. ISBN 0471428124. http://books.google.com/books?id=NvpUBgfZur4C. 
20. ^ "Paid Notice: Deaths". The New York Times (The New York Times Company). 1998-06-16. http://query.nytimes.com/gst/fullpage.html?res=9807E7DD153DF935A25755C0A96E958260. Retrieved 2008-03-26. 
21. ^ "Speakers Platform Speakers Bureau: Paul Volcker, Keynote Speaker On: Economics, Global Affairs, Finance / Tax". Speakers Platform. http://www.speaking.com/speakers/paulvolcker.html. Retrieved 2008-03-25. 
22. ^ Lyons, Nick (1987-05-03). "GONE OFF FLY-FISHING". The New York Times (The New York Times Company). http://query.nytimes.com/gst/fullpage.html?res=9B0DE4D9103FF930A35756C0A961948260&sec=&spon=&pagewanted=all. Retrieved 2008-03-25. 
23. ^ Russell, George (1987-06-15). "The New Mr. Dollar". Time Magazine (Time Inc.): p. 4. http://www.time.com/time/magazine/article/0,9171,964650-4,00.html. Retrieved 2008-03-19. 
24. ^ Freeland, Chrystia (2008-04-11). Man in the News: Paul Volcker. Financial Times. Retrieved on 2008-11-27 from http://us.ft.com/ftgateway/superpage.ft?news_id=fto041120081500308382.
25. ^ Cuff, Daniel F. (1987-09-03). "BUSINESS PEOPLE; Of Volcker's Laundry And Fiscal Restraint". The New York Times (The New York Times Company). http://query.nytimes.com/gst/fullpage.html?res=9B0DEFDB163AF930A3575AC0A961948260. Retrieved 2008-03-25. 

Further reading

• Paul Volcker: The Making of a Financial Legend, Joseph B. Treaster, New York: Wiley, 2004.

External links

• Official Bio
• The Independent Inquiry Committee into The United Nations' Oil-for-Food Program
• Time for Paul Volcker to Resign from the Oil-for-Food Program A critical article on the Heritage Foundation Website.
• Ubben Lecture at DePauw University
• "Rethinking the Bright New World of Global Finance", from the Spring 2008 issue of International Finance

Political offices
Preceded by Alfred Hayes	President of the Federal Reserve Bank of New York 1975–1979	Succeeded by Anthony M. Solomon
Preceded by G. William Miller	Chairman of the Federal Reserve 1979–1987	Succeeded by Alan Greenspan
Preceded by Position Created	Chair of the President's Economic Recovery Advisory Board 2009-	Succeeded by Incumbent

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