Tags: volcker | us | consumer

Volcker: U.S. Must Consume Less

By    |   Friday, 06 Nov 2009 11:56 AM

Former Federal Reserve Board Chairman Paul Volcker says the consumer accounts for too much of the economy, a point he says is understood by President Obama and one which implies political support for a weaker U.S. dollar.

In a recent speech, Volcker said Obama realizes that "We cannot have so much consumption."

Consumer spending accounts for about 70 percent of GDP, a level has been reached only by “the magic of financial engineering,” Volcker said.

"We cannot rebuild the economy to the tune of 70 percent consumption or housing booms. It will just break down again," Volcker said.

He told CNBC that in a recent meeting of economic advisors with Obama the president emphasized the need to increase exports.

“That means more manufacturing,” Volcker said.

“There was discussion of the importance of infrastructure. And there was considerable discussion of how can we take advantage of, so to speak, the need for a green economy, where we do a lot of the innovation.”

The key, of course, is turning innovation — a major strength for the United States — into actual production, Volcker pointed out.

“There was considerable talk about retrofitting buildings, save a lot of energy, at the same time give some jobs.”

It also means that there is little reason to stop a steadily weakening dollar from falling even more, an event that would help the politicians immensely — if the government allowed it to happen.

A strong dollar makes U.S. exports too expensive for foreigners to buy. On the other hand, a falling dollar brings U.S. labor costs in line with the world, at the expense of savers and the long-term retirements of millions of Americans.

Cheaper dollars also brings billions of entitlements costs down, something politicians would vastly prefer to having to raise taxes or cut benefits.

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Former Federal Reserve Board Chairman Paul Volcker says the consumer accounts for too much of the economy, a point he says is understood by President Obama and one which implies political support for a weaker U.S. dollar.In a recent speech, Volcker said Obama realizes that...
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Friday, 06 Nov 2009 11:56 AM
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