Fiscal discipline key, says Volcker
If there was one important piece of advice that eminent American economist Paul Volcker wanted to leave with Barbadians it was the need for fiscal discipline.
He said countries had to become disciplined enough to avoid the “excesses” of spending too much, borrowing to build reserves.
The respected former chairman of the United States Federal Reserve – the equivalent of the central bank – conceded that his country had not followed the advice that it often preached to other nations, and was now suffering the consequences.
Speaking to a packed Frank Collymore Hall on Tuesday night, with the audience spilling into the foyer and also the Grande Salle, Volcker said: “In the United States, we don’t like to save very much. We spend a lot on consumer items produced in China. We bought a lot of stuff from China and we paid for it by selling them treasury bills, so they now have US$3 trillion and we have a lot of consumer goods that we have probably used up – and left ourselves with some very large debts.”
During his 35-minute presentation, followed by an almost 45-minute question and answer session, Volcker said the same troubled road travelled by the United States had also been followed by Greece, Spain, Italy and Ireland.
“It is a lack of discipline. It is very easy to borrow . . . and there were no restraints, so we all have big deficits and prudent finance has gone through the window,” said Volcker, the former chairman of President Barack Obama’s Economic Recovery Advisory Board.
And while he said some “repair” of broken economies had begun with stricter capital requirements on banks, most of the new standards to protect the financial sector from another collapse were yet to be implemented.
In a presentation punctuated with humour, the Princeton and Harvard-educated economist said: “Big question is what do we do about the big budget deficits.”
Furthermore, Volcker, who was here at the invitation of Government, told the that so far he had not seen “a convincing approach . . . about budget deficits. Nor have we made a convincing approach to dealing with the balance of payments deficits”.
Volcker commended emerging economies for remaining disciplined and maintaining balanced growth.