Thursday, September 20, 2007

Paul Volcker at Stanford. Feb. 11, 2005

Notes from the video:

- Past few years, most Anglo-Saxon economies have been growing fast
- China and India, with 40% of the world population, have been growing extraordinarily and lifting their people out of poverty.
-But underneath that, there are huge imbalances and risks; they seem as dangerous as I can remember, and I can remember a lot.
- The world is even more dependent on the United States as an engine of growth.
- With the free flow of capital there has emerged new benefits and risks.
- US and Europe have more room to maneuver than ever before, due to strong tradition of monetary stability. And there has been a vast accumulation of wealth- real, paper, housing.

- What's not to like? Let me suggest a few things:
- Boomers are spending like there is no tomorrow. Personal savings in the US have practically disappeared.
- True, businesses have started to rebuild their reserves, but at the same time federal deficit has come to offset this source of national savings.
- We're buying a lot of homes at rising prices, but homeownership is becoming a vehicle for borrowing and leveraging as much as a source for financial security.
- Businesses, particularly manufacturing, aren't investing much.
- At the heart of the problem, as a nation we are consuming and investing, that is to say spending, about 6% more than we are producing. What holds it all together- high consumption, high leverage, government deficits- is a really massive and growing flow of capital from abroad, at about 2 billion a day.
- The lesson I draw: there's a high premium to doing what we can to minimize the risks. We need a willingness to act even when everything on the surface seems placid. It boils down to the oldest lesson of financial policy... a strong sense of monetary and fiscal discipline.

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