Paul Volcker

Since 2008 and the bursting of the great credit bubble, central banks have been printing money hand over fist in a desperate attempt to generate the inflation they feel is necessary to drag the world out of a perceived deflationary spiral. The chart (left) shows the growth in ‘assets’ of G-3 Central Banks over the last 17 months alone, during which time, they have increased by 32%. To date, the level of the various benchmark CPI indicators would suggest there have been no deleterious effects, but just because the results aren’t showing up where those in charge of measuring them are LOOKING, doesn’t  mean they aren’t showing up at all. Look at food prices across Asia. Look at housing prices in Hong Kong. Look at fuel prices in Nigeria. Look at heating costs in the UK. Look at gold.

All you need to read.

"To the extent that a political judgment is made that particular circumstances require government support of the mortgage market, that support should be provided openly by a full-fledged government agency."

Guess the old man is not going to fill Larry Summers sweaty shoes:

• Volcker: "So Difficult" To Dig Out Of Recession
• Volcker: Will Take "Long Time" To Repair Economy
• Volcker: "Underlying" market problem is "too big to fail" issue

and FTW:

• Volcker: Mortgage market is "absolutely broken"

Paul Volcker's live testimony before Chris Dodd's Senate Committee on Bribery, Vice and Corruption can be seen live here.

The difference between the world when Volcker was Fed chairman and today is the end of Glass Steagall. Instead of bailing out simple lenders, the Fed now faces the task of managing and saving giant securities and securitization platforms that are too big to manage in a rational fashion. Don't fool yourself into thinking that JPM chief Jamie Dimon or any CEO of a TBTF bank has the slightest idea what is really happening within their enterprise.

The former Fed Chairman continues to be a lone voice of sanity in an administration gripped by propaganda on preferred TV networks (denial), fingerpointing at the old administration (anger), flag@whitehouse.gov (fear), just no acceptance yet. Funny, but the lie detector test went off the charts when Paul said that there's "no problem between" him and the Obama-ites.

The always informative Warren Pollock has put together a very useful clip on former Fed Chairman Paul Volcker (who, as we discussed recently, had some scathing words for not only the existing TBTF infrastructure, but for Goldman Sachs itself). Recommended watching.

Tomorrow at 9 am, former Fed Chairman Paul Volcker will testify before the House Committee on Financial Services, discussing topics on Systemic Risk and Resolution Issues. Since a former Fed Chairman will effectively be discussing the actions undertaken by the current one, this promises to be a most interesting testimony. We present some key points from Volcker's prepared remarks below: at first blush it would appear that the former Chairman is distancing himself substantially from the activities of the current one, and among other things, is proposing serious curbs on Moral Hazard, on the lack of Fed's accountability, highlights the need for a return to a Glass-Steagall system, and blasts the prop trading/hedge fund business model, whereby in discussing what he believes should be prohibited activities by systemically important firms, he highlights "ownership or sponsorship of hedge funds and private equity funds [as] should in my view a heavy volume of proprietary trading with its inherent risks." If that is not a direct stab at Goldman Sachs, nothing is.