Deciphering Volcker's Message

Deciphering Volcker's Message

Notes from Simon Heapes:

Remember when Sinclair declared a 15yr bear market in Gold, when he did he was only 5yrs off with his prediction in 1980, the bull market in gold re-established itself in the yr2,000 – Not a bad call on Sinclairs part I must admit. He made the decision based on his interpretation of Paul Volckers council !!!

This below is significant believe me people.

Paul Volcker was able to bail the west out of its economic troubles by sending interest rates as high as 22% in some countries last time because the the west had huge reserves in commodities(SAVINGS) to dip into and could afford to slow the worlds economies down(which is what high interest rates do) to weather a forced winter!!

This time the western world does not have that luxury because it does not have the reserves to slow economies down!! This is how other nations outside of the west will and are able to grow at an exponential rate, like China, India, Brazil, Russia, etc!!

If you don’t understand my comments above telephone me, it takes me 15mins to
explain what takes over an hour to type :o)

see articles below!

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Volcker Warns Of Consequences Of Confidence Loss In The Fed

Author: Jim Sinclair

Dear Friends,

Former Chairman of the Federal Reserve and Master of the Financial Universe, Paul Volcker, said this morning:

“We are back in the 70s or worse if confidence in the Federal Reserve is lost.”

This means to me that we are back in the 70s.

Watch out far, far below if the CONSEQUENCES of the Fed actions are realized. They will be!

I listen when Paul Volcker speaks, and I suggest you do the same. It was Paul Volcker who motivated me to leave gold for 15 years.

This is certainly it!

Regards,
Jim

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Volcker Says Fed Interventions Risk Political Battles
By Craig Torres

May 14 (Bloomberg) — Former Federal Reserve Chairman Paul Volcker warned that Ben S. Bernanke’s interventions in securities markets opened the door to political interference that may threaten the Fed’s independence in setting interest rates.

“Intervention in a broad range of credit-market instruments may imply official support for a particular sector of the market or the economy,” Volcker said in testimony to the congressional Joint Economic Committee in Washington today. That “throws them into political battles,” he said in an interview, referring to Bernanke and his colleagues.

Volcker’s comments are his most detailed warning yet about the consequences of the Fed’s rescue of Bear Stearns Cos. and taking on mortgage securities from bond dealers. He joins former Fed chief Alan Greenspan in anticipating greater meddling with the central bank at a time of rising inflation pressures.

“Independence is integral to the central responsibility of the Federal Reserve” for “the conduct of monetary policy,” said Volcker, 80, who served as Fed chairman from 1979 to 1987, and is credited with halting runaway inflation. He was succeeded by Greenspan, who retired in January 2006.

Greenspan, 82, wrote in his book “The Age of Turbulence,” published before the Fed’s credit-market actions, that “the dysfunctional state of American politics does not give me great confidence in the short run” and there may be “a return of populist, anti-Fed rhetoric.”

Like Early ’70s

Volcker, who engineered a surge in interest rates to 20 percent when battling consumer price gains 18 years ago, said “there is some resemblance to where we are now in the inflation picture to the early 1970s.” The Fed failed to contain a pickup in prices at that time, spurring the acceleration of inflation later that decade, he said.

“If we lose confidence in the ability and the willingness of the Federal Reserve to deal with inflationary pressures” and buttress the dollar, “we will be in real trouble,” Volcker said. “That has to be very much in the forefront of our thinking. If we lose that we are back in the 1970s or worse.”

Consumer prices rose 3.9 percent in April from a year before, compared with an average rate of 2.7 percent over the past decade, a Commerce Department report showed today. Volcker said there’s “a lot more inflation” than reflected in government figures.

Lawmakers’ Pressure

Congressional lawmakers pressed the Fed in March and April to widen the collateral it accepts for loans from securities dealers to include debt backed by student loans. The central bank did extend its Term Securities Lending Facility to add asset- backed securities on May 2.

The Fed’s recent actions “will invite greater scrutiny,” said David Jones, a former Fed economist who has written books on the central bank. “The Fed could not be at a more delicate moment, and to the extent that Congress does try to lean on the Fed, it will impinge on its independence at a critical juncture.”

The Fed has created three new instruments since December to alleviate credit strains, including direct loans to nonbanks for the first time since the Great Depression.

Bernanke, 54, said yesterday that financial markets remain unsettled and the central bank will increase its auctions of cash to banks as needed.

`Far From Normal’

While markets have improved, they remain “far from normal,” Bernanke said in a speech to an Atlanta Fed conference at Sea Island, Georgia. “We stand ready to increase the size of the auctions if further warranted by financial developments.”

The flight from risk since August has made financial institutions reluctant to lend to each other, driving up banks’ borrowing costs. That has increased the threat to economic growth already posed by the worst housing recession in a quarter-century by making banks more reluctant to extend credit.

“The Federal Reserve as other central banks is obviously taking onto its balance sheet a lot of mortgages these days,” Volcker said. “Well, the creators of the Federal Reserve system would be rolling over in their graves if they knew the Federal Reserve is buying mortgages.”

Volcker blamed Fannie Mae and Freddie Mac, the government- chartered companies that are the biggest sources of financing for U.S. housing, for failing to take a stronger role in the crisis.

“Where are Fannie Mae and Freddie Mac?” Volcker asked. “These are two congressionally created agencies with the specific responsibility” of supporting the mortgage market, he said.

Tighter Regulation

Volcker said the Fed’s rescue of Bear Stearns and its loans to investment banks now mean both officials and market participants will assume the central bank will intervene similarly in the future. That means tighter regulation of investment banks is critical, he said.

“Systemically important investment banking institutions should be regulated and supervised along at least the basic lines appropriate for commercial banks,” the former Fed chairman said.

Volcker also urged an overhaul of the central bank’s internal organization, with a senior official designated by law to take charge of “administrative responsibility.”

Democratic Senator Charles Schumer of New York, who chairs the congressional panel, said a new single regulator is needed to oversee financial regulation.

While the Securities and Exchange Commission was charged with overseeing Bear Stearns, its main focus is on disclosures to investors, Schumer said in an interview with Bloomberg Television before the hearing. The Fed, which in March pledged $29 billion of financing to secure the takeover by JPMorgan, had no jurisdiction, the senator said.

The Fed “had to do what they had to do, but they’re on tricky ground because the regulatory structure is so ossified,” Schumer said. He predicted that a wider effort to change U.S. financial regulations would take some time and probably awaits a new presidential administration after January.

To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net or Steve Matthews in Atlanta at smatthews@bloomberg.net;

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