Keeping At It - The Quest for Sound Money and Good Government by Paul A. Volcker

Paul Volcker is one of the most recognized and highest integrity government official there is. He takes honesty and integrity to civil service very serious and this was reflected in him by his father who was also a government official with high integrity as well. Paul goes behind the scenes of a lot of the crises he helped alleviate in his career in this book which include the high inflation the U.S. was experiencing during the 1970's that he crushed by raising the Federal Funds rate to 20% (for comparison purposes, as I write this on August 6, 2019, the Fed Funds rate is currently at 2.25%), he chaired the Independent Oversight Boar for Arthur Anderson to assist with the accounting scandals during the late 1990's-early 2000's, and he helped in the Dodd-Frank legislation with the Volcker rule in response to the 2008 financial crisis.


We have for some time been experiencing a breakdown in the effective governance of the United States. Polarization between (and even within) political parties, accompanied by the ever-growing influence of highly concentrated wealth, has paralyzed key elements of public policy making: prudent budgeting able to finance programs ranging from our military services to old-age retirement; sensible strategies for international affairs, immigration policy, health care, and much more. Even needs as self evident as rebuilding our infrastructure seem, for all the talk, beyond our capacity for action. [My note: written in 2018]

Sovereign nations typically want (1) full control of their own monetary and fiscal policies; (2) the benefits of a free flow of capital across national boundaries; and (3) stable, predictable foreign exchange rates. Conceptually, they can achieve and sustain the first two objectives if they are willing to permit their exchange rate to float relatively freely. (Countries that do this include the United States, Canada, Japan, and the United Kingdom.) They can have the last two - free capital flows and stable exchange rates - if they are willing to sacrifice control over monetary policy. (The extreme example is the euro, in which national currencies are eliminated and a central bank sets monetary policy for the whole area.) Or they can retain a fixed exchange rate and monetary policy independence if they are willing to close the economy to international flows of money and capital. (The United States itself moved in that direction in the 1960s. Today China is struggling with this question)

President Nixon's electoral priorities in 1971 and 1972 easily overrode the need to sustain a stable currency. (As the Watergate break-in and cover-up later proved, those electoral priorities also overrode other important considerations.) With the loss of international discipline and strong fiscal and monetary policies, an inflationary process took hold.

We could not escape the fact that price stability is the ultimate responsibility of the Federal Reserve - in my judgement of all central banks.

Did I realize at the time how high interest rates might go before we could claim success? No. From today's vantage point, was there a better path? Not to my knowledge - not then or now. [My note: Paul Volcker looking back on his response to taking the Fed Funds rate as high as 20% in 1981 when he was the Federal Reserve Chair.]

A growing flood of loans had been made during the 1970s and early 1980s to virtually all of the Latin America countries and a few other developing nations as well (then collectively known as the "less developed countries" or LDCs. The borrowers needed the money to finance their countries' deficits and the banks were flush with low cost deposits surging in from the newly oil-rich Middle East. Latin American debt more than doubled to $327 billion in 1982 from $159 billion only three years earlier in 1979. By the end of 1982, the loans averaged more than twice the capital of the eight largest US banks.

As I arrived, the president, sitting there with Chief of Staff Jim Baker, seemed a bit uncomfortable. He didn't say a word. Instead, Baker delivered a message: "The president is ordering you not to raise interest rates before the election." I was stunned. Not only was the president clearly overstepping his authority by giving an order to the Fed, but also it was disconcerting because I wasn't planning tighter monetary policy at the time. [My note: The Federal Reserve is supposed to be independent so this is notable. Also, Jerome Powell isn't the only head who experience pressure on monetary policy. Paul Volcker did as well.]

Economic rents are unearned income, such as when land prices increase as population density rises.

Along with Gene Ludwig, the former comptroller of the currency, we formulated a plan: establish a governmental agency other than the Fed that would be equipped to buy assets and inject capital into vulnerable institutions, following the pattern of the Resolution Trust Corporation that helped clean up the savings and loans in the later 1980s and early 1990s (itself modeled on the Reconstruction Finance Corporation established in 1932 by the conservative Republican Hoover administration.

With a high degree of certainty as I conclude this memoir, I can state that government - the democratic government in which we take pride - is indeed in trouble at every level. Poll after poll delivers the message. Only 20 percent or so of the population trusts the federal government to do the right thing most of the time. Congress fares still worse in public opinion. Even the courts an the press, the so-called fourth branch of democratic government, are in poor repute. Paul Light, the distinguished professor of public administration, in an issue paper prepared for the Volcker Alliance, identified forty-eight highly visible breakdowns in government performance since the beginning of this century - breakdowns important enough to receive substantial interest in the national press. [My note: written in 2018]