I have generally been a huge fan of Paul Volcker’s. Few men in government have been in favor of taking our medicine when we had to, but Volcker has always been willing to bite the bullet and take some pain in order to make some gains. His rules proposals on regulation and his hard monetary stance in the 70’s are two of the greatest contributions to this economy in the last 30 years. Unfortunately, his latest message is one of potential disaster. Just when the U.S. consumer is beginning to show brief signs of strength Volcker brings up the dreaded D word followed by the even more dreaded T word. Those of course are deficits and taxes. Speaking to the New York Historical Society, Volcker warned of potential tax hikes coming down the line. In reference to a question on the budget deficit Mr. Volcker said:
“If at the end of the day we need to raise taxes, we should raise taxes.”
He elaborated by adding that a tax similar to the recent hikes passed in the U.K. would not be a bad idea. Not a bad idea I ask? Talk about a great plan to derail the consumer and any shred of recovery we might be seeing. Now, if Mr. Volcker had said the following I might not be outraged:
“Inflation is beginning to run a little hot and unfortunately, we’ve spent a great deal of money on banker’s salaries, stimulus plans and healthcare in the last 12 months so your taxes are going to be raised”.
But tax hikes in the name of balancing the budget? It’s now quite clear that Mr. Volcker can be added to the crew of leaders who don’t understand exactly how our monetary system works (yes, it is as frightening as it sounds and unfortunately, entirely true). We do not fund our spending via taxes. We do not print bonds to finance our spending. China is not our banker. Neither is Japan and neither is anyone else. As the sovereign issuer of the currency in a non-convertible floating exchange rate system we simply print money and control the money supply via monetary operations, taxes and spending. At a time when inflation remains low, the output gap high, unemployment at 25 year records and low capacity utilization there is almost no fear of runaway inflation. In fact, deflation remains the greater threat despite Bernanke’s attempts to reflate via mal-investment (which is running hotter than I am comfortable with). Regardless, Mr. Volcker is not worried about this. He is clearly catering to the fear mongering of the deficit hawks and those who truly believe we can default on our national debt. He is wrong.
Raising taxes of any kind at this time is a severe hurdle to any economic recovery – even if done for the right reasons. This is not only the wrong reason to raise taxes, but a horrible time to raise taxes. The consumer remains too fragile, the private sector too indebted and aggregate demand too low. The British have already made this fatal mistake. Let’s not follow their lead. The private sector remains far too fragile for such a misstep.
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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Read Armstrong’s criticisms of Volker’s interest rate hikes. Doubled the debt all by himself. Interesting stuff.
I like Volker as well.
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I have generally been a huge fan of Paul Volcker’s. Few men in government have been in favor of taking our medicine when we had to, but Volcker has always been willing to bite the bullet and take some pain in order to make some gains. His rules proposals on regulation and his hard monetary stance in the 70’s are two of the greatest contributions to this economy in the last 30 years. Unfortunately, his latest message is one of potential disaster. Just when the U.S. consumer is beginning to show brief signs of strength Volcker brings up the dreaded D word followed by the even more dreaded T word. Those of course are deficits and taxes. Speaking to the New York Historical Society, Volcker warned of potential tax hikes coming down the line. In reference to a question on the budget deficit Mr. Volcker said:
“If at the end of the day we need to raise taxes, we should raise taxes.”
He elaborated by adding that a tax similar to the recent hikes passed in the U.K. would not be a bad idea. Not a bad idea I ask? Talk about a great plan to derail the consumer and any shred of recovery we might be seeing. Now, if Mr. Volcker had said the following I might not be outraged:
“Inflation is beginning to run a little hot and unfortunately, we’ve spent a great deal of money on banker’s salaries, stimulus plans and healthcare in the last 12 months so your taxes are going to be raised”.
But tax hikes in the name of balancing the budget? It’s now quite clear that Mr. Volcker can be added to the crew of leaders who don’t understand exactly how our monetary system works (yes, it is as frightening as it sounds and unfortunately, entirely true). We do not fund our spending via taxes. We do not print bonds to finance our spending. China is not our banker. Neither is Japan and neither is anyone else. As the sovereign issuer of the currency in a non-convertible floating exchange rate system we simply print money and control the money supply via monetary operations, taxes and spending. At a time when inflation remains low, the output gap high, unemployment at 25 year records and low capacity utilization there is almost no fear of runaway inflation. In fact, deflation remains the greater threat despite Bernanke’s attempts to reflate via mal-investment (which is running hotter than I am comfortable with). Regardless, Mr. Volcker is not worried about this. He is clearly catering to the fear mongering of the deficit hawks and those who truly believe we can default on our national debt. He is wrong.
Raising taxes of any kind at this time is a severe hurdle to any economic recovery – even if done for the right reasons. This is not only the wrong reason to raise taxes, but a horrible time to raise taxes. The consumer remains too fragile, the private sector too indebted and aggregate demand too low. The British have already made this fatal mistake. Let’s not follow their lead. The private sector remains far too fragile for such a misstep.
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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Read Armstrong’s criticisms of Volker’s interest rate hikes. Doubled the debt all by himself. Interesting stuff.
I like Volker as well.
[Reply]
Add your comment below, or trackback from your own site. You can also subscribe to these comments via RSS.
Be nice. Keep it clean. Stay on topic. Comments/names with multiple links will get caught in the spam filter!
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I have generally been a huge fan of Paul Volcker’s. Few men in government have been in favor of taking our medicine when we had to, but Volcker has always been willing to bite the bullet and take some pain in order to make some gains. His rules proposals on regulation and his hard monetary stance in the 70’s are two of the greatest contributions to this economy in the last 30 years. Unfortunately, his latest message is one of potential disaster. Just when the U.S. consumer is beginning to show brief signs of strength Volcker brings up the dreaded D word followed by the even more dreaded T word. Those of course are deficits and taxes. Speaking to the New York Historical Society, Volcker warned of potential tax hikes coming down the line. In reference to a question on the budget deficit Mr. Volcker said:
“If at the end of the day we need to raise taxes, we should raise taxes.”
He elaborated by adding that a tax similar to the recent hikes passed in the U.K. would not be a bad idea. Not a bad idea I ask? Talk about a great plan to derail the consumer and any shred of recovery we might be seeing. Now, if Mr. Volcker had said the following I might not be outraged:
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