Federal Reserve

Former Fed Chairman Paul Volcker thinks 'we're in a hell of a mess'

Key Points
  • Former Fed Chairman Paul Volcker says the U.S. is in "a hell of a mess in every direction."
  • He told The New York Times that the nation has lost respect for its leadership and institutions.
U.S. in a 'hell of a mess in every direction': Volcker

Former Federal Reserve Chairman Paul Volcker, who has reached legend status in the world of central banking, isn't optimistic about current conditions.

When Volcker looks around now, he sees "a hell of a mess in every direction," including a lack of basic respect for government institutions, a current Fed that seems to be following a completely arbitrary benchmark and a "swamp" in Washington run by plutocrats.

"At least the military still has all the respect. But I don't know, how can you run a democracy when nobody believes in the leadership of the country?" Volcker asks New York Times columnist and CNBC "Squawk Box" co-anchor Andrew Ross Sorkin in a column for the newspaper's DealBook section.

"Tall Paul" is most known for willfully taking the country into recession in the early 1980s to finally defeat the inflation that had been strangling the economy. Since then, he's lent his name to the "Volcker rule" part of banking reform legislation that restricts risk-taking at big Wall Street institutions.

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In a book set for release Oct. 30, Volcker laments the current state of conditions, particularly the monied interests eating away at the system of governing.

"There is no force on earth that can stand up effectively, year after year, against the thousands of individuals and hundreds of millions of dollars in the Washington swamp aimed at influencing the legislative and electoral process," he writes, according to Sorkin.

Volcker, in ailing health but not short of opinions, also seems unhappy with the Fed itself. Though it's unusual for former chairmen to comment on Fed matters, Volcker said there appears to be no "theoretical justification" for its 2 percent inflation target. He said the Fed is just one of the institutions in which people have lost confidence.

And he also dispels with the myth that presidents historically haven't tried to influence interest rates. Recounting a 1984 meeting he had with former President Ronald Reagan, then-chief of staff James Baker flatly told Volcker, "The president is ordering you not to raise interest rates before the election."

"I was stunned," Volcker said.

In a statement, Baker said he has "absolutely no recollection" of Reagan telling him to order Volcker not to raise rates. He did say it was "quite conceivable" that he may have expressed a preference for lower rates heading into the election, but "it would not have been phrased an 'an order.'"

Read the full account of the Volcker interview here.

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