This frankness and honest statement of the situation is the reason that Paul Volcker, one of the most credible advisors in the Obama Administration, is a marginalized voice as compared to Larry Summers and Turbo Tim. Ironic, because only by assuming Volcker's leadership style can the US President hope to get his country out of this cycle of monetary bubbles, systemic fragility, and chronic imbalances driven by an outsized, counterproductive financial sector.
DER SPIEGEL: But even though there are still more people being fired than hired, the Chairman of the Federal Reserve Ben Bernanke is saying that the recession is technically over. Do you agree with him?
Paul Volcker: You know, people get very technical about these things. We had a quarter of increased growth but I don't think we are out of the woods.
SPIEGEL: You expect a backlash?
Volcker: The recovery is quite slow and I expect it to continue to be pretty slow and restrained for a variety of reasons and the possibility of a relapse can't be entirely discounted. I'm not predicting it but I think we have to be careful.
SPIEGEL: What is the difference between this deep recession and all the other recessions we have seen since World War II?
Volcker: What complicates this situation, as compared to the ordinary garden variety recession, is that we have this financial collapse on top of an economic disequilibrium. Too much consumption and too little investment, too many imports and too few exports. We have not been on a sustainable economic track and that has to be changed. But those changes don't come overnight, they don't come in a quarter, they don't come in a year. You can begin them but that is a process that takes time. If we don't make that adjustment and if we again pump up consumption, we will just walk into another crisis.
SPIEGEL: The US has not yet instituted any kind of reform policy. What we see is the government and the Federal Reserve pouring money into the economy. If one looks beyond that money, one sees that the economy is in fact still shrinking.
Volcker: What should I say? That's right. We have not yet achieved self-reinforcing recovery. We are heavily dependent upon government support so far. We are on a government support system, both in the financial markets and in the economy...
The rest of the interview can be read here
The net Treasury International Capital flows came in light today at 20.7B versus 38.7B expected. GE was a drag on the big caps because of Immelt's lack of enthusiasm for any US recovery.
As a reminder, tomorrow the FOMC will make its December rate decision public at 2:15 EST. Traditationally there will be shenanigans abounding. In the morning the US will be revealing its premiere fantasy economy number, the Consumer Price Index.
As a heads up, Gold often gets hit with a bear raid on FOMC day. Since the miners were hit a bit today with possible front-running that might be a good bet. Who can say in these thin markets?
The US economy is much like this stock market rally: big on show and thin on substance.
