Paul Volcker: U.S. Is in a Recession

“It’s not going to be a problem in the short run.  Inflation doesn’t flourish in the face of recession,” said Paul Volcker, who served as chairman of the Federal Reserve from 1979 until 1987.  “It’s something we have to worry about when we get out of this recession.  I have been around for a while.  I have seen a lot of crises, but I have never seen anything quite like this one.  This crisis is an exception.  I don’t think we can escape damage to the real economy.” Volcker believes that the United States is officially in a state of recession.  In a Reuters’ article, Volcker affirms that stabilizing the financial system to ease the credit crisis is a government priority, even if it requires significant intrusion into the private sector.

“The first priority is to stabilize the financial system.  It is necessary, even though the cost is heavy government intrusion in markets that should be private,” Volcker told an audience at a seminar in Singapore.  “Housing prices in the U.S. are still declining.  There are more losses to come.”

Volcker, who is credited with battling the double-digit inflation of the 1970s, believes that the massive infusion of liquidity by the Federal Reserve ultimately could result in inflation or even stagflation.

Volcker is currently chairman of the board of trustees of the Group of 30, an international body composed of central-bank governors, leading economists and private financial-sector experts.  Additionally, the former Federal Reserve chairman is serving as an economic advisor to Barack Obama’s presidential campaign.