on October 29, 2012
My reaction to Silber's book is undoubtedly distorted by my own experience. I am aged 63 years, most of my working life in or near fixed-income markets, daily watching the Fed; one of its greatest admirers, and also an admirer of Mr. Volcker.
"Volcker" has some limited use to an amateur audience, but is too shallow even there, a kind of Classic Comics version of Fed history, or an as-told-by sports biography. Its adulation of Mr. Volcker is not so bad: Mr. Volcker is as unassuming and self-deprecating as any person who has lived an important public life. Still, Silber's only significant source work is Mr. Volcker himself.
We are living through a very difficult time, a predicament without precedent, and thus without empirical guideposts. There have been thousands of similar financial crises, but nothing of this scale, nor after a period of such extraordinary computer-assisted financial innovation. Central banks everywhere are struggling to invent apropriate policy while critics accuse them of everything from money-printing and say they should shut down altogether to accusation of inaction and insufficient imagination. This book fails to elucidate, especially for non-professional readers better served by "Lords of Finance" and "Secrets of the Temple."
Silber's book does have a few pages of useful anecdotes (Barbara's story, Reagan's diary), but repeated awful stretches. Mr. Volcker (as all central bankers) is annoyed by "speculators" who refuse to behave in ways comfortable for central bankers. Page 26 repeats "speculators" ten times in two paragraphs. The book is a useful financial history skim, but the same depth could be found in a Wiki entry. In several spots Silber has Volcker simultaneously in favor of and opposed to devaluation, and Silber is repeatedly on both sides of "monetarism" as actual strategy and cover story.
Perhaps the one most useful anecdote (earning the second star here), shining light on the Volcker interior: his refusal to allow Sargent Shriver to bring a gold medal he had been awarded in Europe into the US; an exception had been made for Olympic medals, but not this one. Mr. Volcker's great strengths -- unbending courage and integrity -- from time to time resulted in rigidity, rules for rules' sake, possibly including today's "Volcker Rule."
A short professional critique makes three points. How was it possible to write this history without a single mention of oil as a component of the Great Inflation, and how the Fed then or in the future might better deal with similar "price shocks"? Or to fail to explain to any audience the distinction between price shock and morphing into a wage-price spiral? How was it possible to leave out any mention of the savings and loan industry? Mr. Volcker's ultra-high-rate strategy in 1979 threw the entire $3 trillion (constant dollars) industry over the side without any plan at all, callous and narrow policy. Subsequent policy error (mostly Reagan and Congress) later made S&Ls all the worse (still on Mr. Volcker's watch), but 75% of 7,000 S&Ls were insolvent at Mr. Volcker's hand alone by 1982. A third significant omission involves Mr. Volcker's embarassing and institution-damaging last year as Chairman; Mr. Silber offers nothing but Mr. Volcker's version and some newspaper clippings.
The Fed is a unique American institution, a star chamber as important as the Supreme Court but a recent invention of Congress, its functions nowhere in the Constitution, and its members with no guide as powerful and reliable as stare decisis. Yet, rather frequently and inescapably the economic future of this country rests upon Fed governors. Part of Mr. Silber's struggle to find depth is traceable to Mr. Volcker still treating Fed operations 30 years ago as state secrets. Mr. Volcker has written no memoir (and better Mr. Greenspan had not written his self-serving volume). I hope that first-class historians will one day, while the actors are still alive, dig at the tale of Volcker's Fed (and the others) as studies in leadership and a desperately important aspect of democratic government.
on September 6, 2012
The reader of this book learns a good deal about Paul Volcker's character and personal life, including, for example, the poignant sacrifices made by his wife so that he could remain in public life. And the reader does become privy to illuminating conversations between Mr. Volcker, U.S. presidents, and other leaders. Primarily, however, the book is an extremely readable and insightful history of monetary policy in the United States from the 1930s through the 1980s along with a brief discussion of the Volcker rule.
The history told in this book is clearly-- if not chillingly-- relevant to understanding the stresses and challenges of today's world financial system: Mr. Volcker had to choose how much to accommodate fiscal imbalances, if not irresponsibility; politicians seem to need a crisis to take remedial actions; Too-big-to-fail had its roots in the rescue of all creditors of Continental Illinois; and defaults of Mexico, Brazil, and Argentina could have wiped out the capital of the largest U.S. banks.
In short, the book is well written, thoughtful, and relevant.
on May 20, 2013
1. Published in 2012, this book provides fresh (and timely) historical context on the causal factors affecting the US Dollar
2. Monetary Policy Style: critical contrast between the McChesney/Volcker Feds and the Burns/Bernanke Feds #study
3. The book's mapping of the sequence of political decisions made prior to Gold's top in 1980 is well done (Chapter 11, New Territory)
1. "Five American Presidents (3 Democrats, 2 Republicans), spanning nearly half a century, have called on Paul A Volcker to serve..." (pg 1)
2. "Do not suffer your good nature to say yes when you ought to say no" -George Washington quote hanging in his father's office (pg 15)
3. "I never got along with the coach" -Volcker on his basketball coach @Princeton (1945-1949) #athlete (pg 17)
4. "Morgenstern... left his mark by turning Paul into a professional skeptic" #German born economist, author of Theory of Games (pg 17)
5. "Martin thought economists' forecasts rivaled the accuracy of fortune tellers" #WilliamMcChesnyMartin, one of Volcker's heroes (pg 21)
6. "Kennedy Pledges He Will Maintain The Value of The Dollar" @NYTimes headline #1960, Gold was $35/oz - #perspective (pg 23)
7. "Gnomes are imaginary, but speculators are not." #1960s roots of our friend @DougKass macro machinations? (pg 27)
8. "All I can remember after that was a word flashing in my brain like a yellow caution sign" #Samuelson #Keynes policies (pg 31)
9. "Hayek's words forever linked inflation and deception deep inside my head. And that connection, which undermines trust in government" (pg 33)
10. "Charles de Gaulle pursued Gold the way Henry VIII did wives." #1965 context #zeigeist of the times very different than today (pg 42)
11. "If the US could change the rules in March 1968 and stop selling Gold... it could amend them further" #1968, Martin #StrongDollar (pg 50)
12. "Failure to maintain those promises undermines trust in America. And trust is everything." #1969, epic #StrongDollar quote by #JFK (pg 53)
13. "Preserving the Dollar's status had been the focus of Volcker's favorite committee" #1969 Volcker Group, de Gaulle resigned 1969 (pg 60)
14. "Chairman Martin wants to raise the discount rate." But #LBJ wanted nothing of it (neither did Nixon) #USD credibility 1969 (pg 69)
15. "Soon after becoming Fed Chairman in February 1970, Burns began to ease..." sound familiar? #Bernanke, didn't work either (pg 72)
16. "We can't afford to risk a downturn, no matter how much inflation" -Nixon #1970 w/ #Burns Fed, conflicted/compromised (pg 73)
17. "August 15, 1971... Nixon stunned the world in a televised Sunday night address" #GoldStandard, gone - thanks Nixon (pg 79)
18. "The Coming Devaluation of the Dollar" @NYTimes May 1971, yep #sad - where it all started #Burns/Bernanke (pg 101)
19. "If I have to talk to Burns again I'll do it. Next time I'll just bring him in" -Nixon, goodbye "independent" #FederalReserve (pg 105)
20. "I don't give a shit about the Lira" -Nixon, #1972 Dollar Debauchery (pg 110)
21. "The difficulty is that no one is ever prepared to move except in a crisis" -Volcker #1973 (Shultz announced a 10% USD devaluation) (pg 117)
22. "Burns exploited Volcker's fixation with public service to persuade him to accept the Presidency of the Federal Reserve of NY" #1975 (pg 125)
23. "The public's resentment made sense, considering that consumer prices surged by 12% during 1974", #output of 1971 Policies To Inflate (pg 129)
24. "Whip Inflation Now" #WIN buttons for Jimmy Carter, elected into office #1976 to do a job he didn't accomplish; #1970s = Stagflation (pg 133)
25. "It's the same old story - lack of confidence in US government policies" -Currency Analyst (in #Frankfurt), sound familiar? (pg 139)
26. "Volcker participated in the Dollar rescue by requesting an increase from 8.5% to 9.5% in the discount rate" #1978 (pg 140)
27. "I am not particularly eager to make a major move now or in the fore-seeable future." -Volcker #1979, so #Gold rallied one last time (pg 156)
28. "I think there's a need to come in here as inconspicuously as possible... at diverse hotels" -Volcker #1979, no #Bernanke style #leaks (pg 165)
29. "The price of Gold hit an all-time high of $850 an ounce on Monday, January 21, 1980" #study history vs causal #Fed factor (pg 182)
30. "Jimmy Carter ended his honeymoon with Paul Vocker on October 2 , 1980, a month before the presidential election" #compromised (pg 190)
31. "Partisan politics ought not be around the Dollar" -William McChesney Martin #Patriot #1980
32. "Milton wants to abolish the Fed" -Arthur Burns #1980, the American #zeitgeist was very 2011 @RonPaul #libertarian (pg 194)
33. "Do we really need the Fed" -Ronald Reagan #1980 message resonated with common sense (pg 195)
34. "We obviously have a credibility problem - by "we" I mean the United States" -Volcker #1980 in "To Be or Not To Be a Central Banker" (pg 197)
35. "People have to change their expectations and their behavior... that is always an uncomfortable process" -Volcker #1980 (pg 198)
36. "I was very pleased to read a prediction that the price of gold will nosedive below $300/oz" -Reagan #1980 #StrongDollar leadership (pg 200)
37. "None of us really understands what's going on with all these numbers" -David Stockman (#Reagan's Budget Director) #classic (pg 209)
38. "He now refers to you as Paul rather than Chairman Volcker" #Reagan understood #StrongDollar tax cuts #commodities (pg 214)
39. "I think we'll re-appoint Paul Volcker for about a year and a half. He doesn't want a full term" -Reagan #1983 #winning (pg 233)
40. "Having 2 or 3 $40B institutions in trouble is a horse of a different color" -Volcker in #1984 as #ContinentalIllinois was imploding (pg 243)
41. "Keynesians such as Samuelson said it was impossible, monetarists such as Friedman said Fed was doing wrong" #1985 Volcker right (pg 247)
42. "Volcker resigned twice, but only one stuck" post #1985, James #Baker politicized everything all over again #PlazaAccord (pg 252)
43. "The role you have played has been invaluable" -Margaret Thatcher on #Volcker #1987 (pg 265)
44. "I may be old but I am persistent" -Volcker #2010, #Volcker Rule
45. "Foreigners hold Dollars because America has demonstrated fiscal and monetary integrity" #basic, pure #Constitution (pg 298)
An easy read that will educate people on how central planning has become so causal to American Purchasing Power (US Dollar) and inflation/growth expectations.
on September 13, 2012
This is a well researched biography written by a nonacademic. It is particularly strong on the period of Volcker's tenure as a Federal Reserve Chairman when he stopped inflation cold. It might also be read as a history of the rise of monetarist policy with a heavy accent on Volcker. It's a blow by blow retelling of the various high low points of the Volcker years and his interaction with Carter and Reagan administrations as well as congress. There are plenty of anecdotes and on the whole Volcker's strong character comes across. The author makes no bones about being both a friend and an admirer so the book on the whole is very laudatory. Those wanting an unbiased account will have to look elsewhere not that the book suffers in any way because of this. I found the rest of the book, the parts covering the early years as well as the post fed years as being less interesting, although invaluable in understanding Volcker. There are even examples of Volcker's early schoolwork and report cards. One thing is certain is that all presidents have subsequently picked chairmen who were less likely to be independent thinkers, and less likely to cross the President, which is not too surprising after reading this book. The consequences of a less independent Fed has been the inevitable return of inflation such that it now has become an accepted Fed target and goal. We have come full circle to high stagnant unemployment with increasing inflation. What is the likelihood that a President will court political suicide by appointing a Fed Chairman who will bring monetary restraint regardless of short term economic consequences?
on December 14, 2012
William Silber's biography of Paul Volcker is rightly sympathetic to the man whose determination and integrity conquered U.S. inflation. When needed, he overcame opposition from politicians and academic economists. Yet once his work was done, policy slid back and his abilities were wasted.
Silber traces Volcker's career from his earliest days at the money market desk of the New York Federal Reserve. He was a Democrat when he served in the Treasury Department in the 1960s, but even then he was skeptical of the administration's Keynesians and their inflationary policies. The Republican President Richard Nixon brought him in as Treasury undersecretary for monetary affairs, where he helped negotiate the end of the Bretton Woods system and expressed distrust of the Fed's expansionist policies.
Volcker was not promoted by Nixon, who valued his intellect but distrusted his party affiliation and independence. So he returned to the private sector in 1974, only to be appointed president of the New York Fed the next year. It was there that he established his reputation as an unswerving proponent of anti-inflationary policy. President Jimmy Carter promoted him to run the whole Fed in August 1979.
He showed both intelligence and boldness there. With only a tenuous majority on the Federal Open Market Committee, Volcker announced a new policy on Oct. 6 that year: the Fed would track money supply growth, wherever that might lead interest rates. Initially, it led them steeply upward, from around 12 percent to a peak close to 20 percent in April 1980. When the money supply shrank after Carter introduced direct controls on consumer credit in March 1980, Volcker responded with sharp rate cuts, 10 percentage points in two months.
Volcker stayed firm while Carter wavered. The president removed credit controls in May 1980, money supply increased rapidly, and the Fed increased rates in October, possibly costing Carter re-election a month later. Volcker kept squeezing the monetary tourniquet; the federal funds rate peaked above 20 percent in January 1981 and was reduced painfully slowly, remaining at 14 percent in July 1982, by which time inflation was running below 5 percent and the U.S. economy was in the deepest recession between 1937 and 2008.
During this period Volcker had steadfast support from President Ronald Reagan, but not from his more pragmatic economic advisers. Curiously, Volcker was also opposed by Milton Friedman, generally thought of as the most distinguished inflation-hating monetarist around. Friedman accused the Fed chairman of steering the economy towards the rocks through over-tight policy. Then again, Friedman supported Fed Chairman Alan Greenspan's loosening of interest rates after 1995; the high priest of monetary orthodoxy was himself less than orthodox.
Despite a strong recovery and a rising stock market, by 1987 the Reagan administration pragmatists had tired of Volcker's independence and offered little opposition when he decided to retire for a more lucrative career in the private sector.
It was an opportunity missed. Volcker could now be in his ninth term as Fed chairman - a tenure shorter, after all, than that of several U.S. senators. Silber does not explore this fascinating alternate history possibility and does not give us the means with which to do so, never telling us what Volcker thought about Greenspan's abandonment of monetary targets in 1993 and the post-1995 expansionism of Greenspan and his successor Ben Bernanke. Instead, he concentrates on Volcker's efforts after 2009 to promote the Volcker Rule separating proprietary trading from commercial banking - in which Volcker was only an adviser, not a principal.
President Bill Clinton could have appointed Volcker Treasury secretary in 1992, but didn't. In the end, there was demand for Volcker's determined intelligence and steadfastness only in a crisis. If the Fed's current ultra-loose policies have the same effect as the policies of the 1960s and 1970s, a similarly-minded successor may be needed.
on February 3, 2013
Some might say stubborn, but this book demonstrates his strength to deal with the complex politics of finance.
What made it interesting for me was the intimate look at his thinking, planning, and coping with the pressures of his job and the demands of the economy.
Silber clarifies Volcker's steadiness in leading our economic path in a variety of situations over the years. It left me feeling admiration for him, in contrast to my former superficial impression of the guy that put us into a recession because of his high interest rate policy. I highly recommend this book.
on January 30, 2013
Rather than a biography, this book is a blow-by-blow account of Volcker's life as a public servant. It is truly gripping. If you enjoyed books like "Too Big to Fail" and "Lords of Finance" or even "Barbarians at the Gate," beware of picking it up, you will not rest until you have finished it.
I sure couldn't.
While I was at it, I managed to pick up some international economic history. I already knew, for example, that by the end of the sixties the US was running out of gold to stand behind the convertibility of the dollar, because at its parities with America's trading partners and particularly the Deutschemark, people in the US were finding it irresistible to buy VW Beetles instead of Buicks. But I had no idea that it was Volcker's idea to rattle France and Germany with the threat of a free-float to force the 15% devaluation of the dollar which he deemed adequate to stop the run on the Treasury's gold. Or that the 8% devaluation that was negotiated as a compromise (with Valery Giscard d'Estaing and Helmut Schmidt, no less) was the beginning of the end for Bretton Woods because it caused tremendous instability while proving inadequate to achieve its primary goal. Or that the stab in the back came from the UK! Volcker basically was the midwife for the end of Bretton Woods, but in his heart he wanted it to continue. That's what the book alleges, at any rate, and I have every reason to believe it.
Somehow, the author, who is clearly in Volcker's thrall, deems this to have been a success. Regardless, you cannot helping falling for Volcker too. The principal theme of the book is that Volcker was a tireless, persistent and highly principled pragmatist. The first example, which I mention above, is probably the only questionable example, the rest are good enough for me.
Further down in the book you learn how a less principled pragmatist, Nixon, forced the Fed to keep rates inappropriately low so he could win the 1972 election, how Volcker's most famous policy decision, a surprise change of focus to the money supply (as opposed to interest rates) was designed to combat the expectations of ever-rising inflation, how the policy famously won the day, how it cost Carter his presidency, how Reagan almost failed to reappoint Volcker and how James Baker undermined him. Volcker also gets credit for the now forgotten Gramm-Rudman-Hollings legislation, which kind of, sort of put a bit of a break on government spending. And he actually comes under criticism for planting the seeds of "too big to fail" when Continental Illinois was saved. The Volcker rule gets a chapter too, and the author tells us how he played a role, stuff that simply does not fit in here, but hey...
You also find out a hell of a lot about the people involved. How much Volcker respected Martin, how much he learned from Connally, how he played Kissinger, how friendly he was with Burns, how he sparred with Friedman, what tattoo can be found where on George Schultz's body. You can't help marvel at how little Volcker was prepared to earn relative to what he could have done, how much his family had to sacrifice as a result, and you can't help wonder where we'd be now if he had not been succeeded by Alan Greenspan.
Overall, this is a tremendous book. You get the horse's mouth account of what was comfortably the Fed's finest hour, and that alone warrants a five star rating. If that leaves you a bit despondent about where we find ourselves today, that's probably also part of the author's intention.
Before I forget, the Paul Volcker described in the book shall be reading this. Hi there, Paul, you rock!
on September 15, 2012
Prof. Silber has probuced a wonderful work about more than a truly great American - Paul Volcker. The book details and explains how and why the US went off the gold standard and the recent history and impact of the Federal Resere. My conclusion after reading of the book, and I would welcome Prof. Silber's comments on whether he agrees, is that the current Fed actions of QE-3 and operation twist combined with the lack of any fiscal restraint by the government may well lead the US back into a period of stagflation that even someone of Paul Volcker's stature will be unable to remedy (and it is unlikely the US will have anyone close to Chairman Volcker's stature at the Fed).
This is a truly impressive and important book.
on October 29, 2012
Volcker: The Triumph of Persistence is a biography of former Chairman of the Federal Reserve Paul Volcker. It is an account of the Chairman's personal and professional history, with a focus on professional. It gives the full history so as to allow the reader to follow the Chairman's belief system and how it evolved through the personal history told. It is extremely readable and interesting and the economic insight embedded is valuable and scattered throughout the book. The book is composed of four sections - Background, Confronting Gold 1969-1974, Fighting Inflation 1979-1987 and The Twenty First Century.
The background section gives a quick overview of Volcker's family and background and then moves on to his academic background. It is fairly brief and gives a quick overview of how Volcker entered into public service and started academically but never finished his dissertation. The second section then moves into the Bretton Woods Era with the heightening storm relating to the US gold peg. The author discusses the history and mechanism of Bretton Woods, how Volcker was a believer in it and at an early age believed that freely moving capital with floating exchange rates could be destructive and how stable exchange rates was the better exchange rate mechanism and thus needed to be adjusted rather than overhauled. In this, Volcker is shown to be the architect of the dual market for gold with the central bank rate and the public, freely traded market. This was catalyzed by the price of Gold/$ in the UK violently moving up past $35 which was the peg. Other relative exhange rate adjustments were also adjusted, but the origin of the stress came from the excess supply of global dollars that the author pointed at, through the eyes of Volcker, as the source of currency oversupply and hence weakening fundamental value. This crisis resolution process lasted until it couldnt.
The third section is the one of Volcker's tenure as Fed Chairman and is where his resolve and philosophy were among the core focuses. It discusses how Volcker recognized, through the lens of rational expectations, that inflation expectations were embedded in the popular psyche. Those expectations drove the velocity of money and wage bargaining and the eradication of them would require a truly difficult battle. He used a pragmatic mix of interest rate targetting and monetarist theory to control the money supply but also not let the market price of money be a pure function of the supply/demand balance given the Fed's desired quantity growth of money. This consistent and bold approach fed criticism through both governments and caused much suffering in the economy, but eventually overcame the greater economic problem of inflation. The true independence of the Fed can be appreciated through this story.
The final section is on where Volcker and finance is today. It describes the financial crisis and how an overhall of financial services is desired by Volcker and many others. It brings up issues with too big to fail and how Volcker was never a believer in the pure free market philosophy of banking. The material is probably not new to those who have been following Volcker and financial reform in the press over the last few years.
The heart of this book, the second and third sections, are really great to read. I did not know the full history of Paul Volcker but now I feel i understand the history and the monetary policy employed much better. There are many economic and political lessons one can draw from this, but one can read it just as a biography and find it fulfilling. I have taken a lot from this book, especially about such core issues as the Fed's independence and how fiscal dominance can politicize the fed. The balancing of the Fed's responsibilities is an act which requires much balancing, but in this account one can see Paul Volcker did an excellent job and is rewarded by a nation of admirers.
on September 28, 2012
Silber brings a positive bias to his biography of Paul Volcker, but it is difficult to argue with the facts of Volcker's long career in public service, making principled decisions and persisting in them even when they are unpopular with many in both political parties. The strength of this book is that Professor Silber is a financial expert in his own right, but one able to explain complex financial instruments and transactions to the average reader, often even with a light touch of humor. The subtitle: the triumph of persistence, highlights the key to Volcker's best known success in taming inflation in the 1980s as Chairman of the Federal Reserve. He led the board to administer the bitter medicine of allowing interest rates to rise, even to the point they hurt consumers and corporations alike before they eventually curbed the inflation caused by the excesses of gold speculators. The fact that it ultimately worked, even without assistance of the administration or Congress to curb deficit spending, proved the effectiveness of persistence even in the abscence of political cooperation. The irony was the ultimate trust and confidence he earned from bankers and politicians who intially fought him.
You end up feeling that even though you might not always agree with Volcker or find him a comfortable colleague, here is a man of knowledge and integrity committed to public service above private gain. That is such a rare commodity, one should pay homage.
Silber touches only briefly on Volcker's small role in influencing banking regulation during the current Obama administration but it is difficult to avoid wondering what might have resulted had he played a more significant role. The financial principles which guided Volcker's career are extremely relevant for anyone wishing to understand government policy in this sector today, and worldwide confidence in the US monatary system owes a huge debt to Volcker's policies a generation ago.