by Calculated Risk on 7/14/2006 03:07:00 PM

From Bloomberg:

Paul Volcker, who took over the Federal Reserve a generation ago at a time of soaring prices and stagnant growth, said the current central bank chief, Ben S. Bernanke, faces an even tougher challenge.

``It was easier for me,'' Volcker, 78, said in an interview to be broadcast this weekend on ``Political Capital With Al Hunt,'' a Bloomberg television program. ``While the economic situation was much worse, it was easier to act because it was clear what the enemy was.''

Volcker, appointed by President Jimmy Carter in 1979, is credited with defeating inflation, which was 13 percent when he took the Fed's helm. Volcker raised the benchmark interest rate to a record, helping send the economy into recession.

Clearly the economy is better today than in 1979. However the imbalances are much worse, and fiscal / public policy has been a disaster. I agree that Bernanke has the more difficult task.

While he said the global economy is doing well, Volcker voiced concern that the good times can't last.

``We are skating along quite nicely,'' said Volcker, though ``the ice is not as thick as I would like it to be.''

The U.S. current-account deficit exceeded $208 billion in the first quarter. The figure, which includes trade as well as transfer payments and investment income, declined from $223 billion the previous quarter. It was still the second-largest on record and requires the U.S. to attract $2.3 billion in foreign capital each day fund the gap.

``We are consuming too much and investing too little,'' said Volcker, who also indicated that higher taxes may be needed to narrow the budget deficit.
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``Revenues have gotten too low'' relative to what the government wants to spend, Volcker said.

Because of U.S. dependence on foreign capital to fund trade and budget gaps, ``it is critical that we maintain confidence in our currency,'' said Volcker.