Some would choose the Bundesbank’s Karl Otto Pöhl. The recently retired former European Central Bank president Mario Draghi would have his supporters. But the man they would have to beat for the title of the most influential central banker is Paul Volcker, the former chairman of the Federal Reserve, who has died aged 92.
Volcker shaped the modern world in three key ways: as chairman of the Fed, he used monetarist shock treatment to cure the US of the serious inflation habit it had developed in the 1970s; he did so by jealously guarding central bank independence; and he created the conditions for a 25-year bull market on Wall Street that only ended with the onset of the 2007 financial crisis.
If that makes it sound as if Volcker was a dyed-in-the-wool Republican, that’s far from the truth. He was opposed to the US’s descent into plutocracy, said the rich should pay their taxes, and was brought in by Barack Obama after the Great Recession to help clean up Wall Street.
But it will be as Jimmy Carter’s choice to run the Fed in 1979 that Volcker will be remembered. A combination of factors – the breakdown of the Bretton Woods fixed exchange rates system, spiralling oil prices, and a series of policy mistakes – had pushed the annual inflation rate well into double digits.
It is a sign of how things have changed in Washington that Carter did not complain – publicly, at least – as Volcker pushed interest rates to punitively high levels in order to squeeze inflation out of the system. Not that Volcker would have changed course. He was adamant that central banks should resist political pressure and only recently told the current Fed chair, Jerome Powell, to face down Donald Trump.
Volcker’s extreme monetarism had the desired effect, albeit with considerable collateral damage. Inflation came crashing down, but Carter lost the 1980 presidential election to Ronald Reagan and a series of Bruce Springsteen songs – The River, My Hometown, Born in the USA – chronicle the hollowing out of American industry that took place in the Volcker years. The deep scars remain.
WTO faces existential threat
A lack of judges to hear appeals against rulings made by the World Trade Organization when disputes flare up between member countries sounds like a minor bureaucratic spat but is far from it. The decision by the US to continue blocking appointments to the WTO’s appellate body (AB) is a big deal.
Starting with the obvious, if the AB has fewer than three members, it means there can be no final resolution to disputes. That means big and important cases – such as the row between Boeing and Airbus over subsidies – could rumble on for decades.
When it was set up in the mid-1990s, the WTO had two functions: to organise rounds of negotiations that would liberalise global trade, and to act as the body that polices disputes. It gave up on the idea of securing an ambitious multilateral trade round long ago: now its other reason to exist is under threat.
The US is not alone in having a problem with the way the WTO’s AB has functioned. Many other countries feel the judges have overstepped the mark by using their rulings to make case law that infringes on their sovereignty. But the impasse reflects a retreat from cooperation, policy coordination and from globalisation. It is a sign that the international trading system is in serious trouble.
Election result still too early to call
Between them the bookies and the currency markets seem to have decided that the UK election is over. The betting firms have the Conservatives at 4-1 on to win an overall majority on Thursday, while the pound has powered to a 31-month high against the dollar.
Yet some polls show the race is tightening, the bookies have been wrong in the past, and there are lots of undecided voters out there. The bullishness might be a tad premature.