:00:11. > :00:21.conviction. Those are the headlines. Now it is time for HARDtalk.
:00:21. > :00:36.
:00:36. > :00:43.Economic America has lost much of his economic swagger. Can it get it
:00:43. > :00:49.back? I have come to New York city to me Paul Volcker. He was chairman
:00:49. > :00:55.of the Federal Reserve in the world Reagan era. He has served five US
:00:55. > :01:02.presidents. Barack Obama sought his advice to engineer an economic
:01:02. > :01:12.recovery. But does America possess the political leaders capable of
:01:12. > :01:24.
:01:24. > :01:30.Paul Volcker, will come to HARDtalk. It is tempting for policy makers
:01:30. > :01:37.here to look across the Atlantic to Europe and look at the date in
:01:37. > :01:47.Europe, the lack of growth and to breathe a sigh of released. -- the
:01:47. > :01:51.
:01:51. > :01:57.debt in Europe. There is no feeling of relief. We don't want anything
:01:57. > :02:03.to happen over there that will upset our slow growth. Do you
:02:03. > :02:10.believe there is a real danger that what is happening in Europe could
:02:10. > :02:14.really affect the United States? question. It will affect the world,
:02:14. > :02:23.the whole financial system. There is so much connection between the
:02:23. > :02:31.banks. A large problem in Europe will affect us. It makes policy
:02:31. > :02:41.making here it very difficult. There is not much we can do
:02:41. > :02:42.
:02:42. > :02:50.directly. I said from my experience, sitting around here for 60 used in
:02:50. > :02:57.international finance, -- 60 used. Isn't there something the United
:02:57. > :03:07.States can do to resolve the situation? But I am not sure there
:03:07. > :03:12.
:03:12. > :03:22.is enough. We have enough problems of Arran. -- offer our own. -- of
:03:22. > :03:26.
:03:26. > :03:36.our own. -- 60 years. You are recognising the global power of the
:03:36. > :03:39.
:03:39. > :03:44.USA has been reduced. That is very true. In 2008 he broke the habit of
:03:44. > :03:50.a professional lifetime in being so it clear for your backing for
:03:50. > :03:57.Barack Obama for President. I wonder now, whether you are
:03:57. > :04:04.somewhat disappointed with him? Everybody is a little frustrated.
:04:04. > :04:11.We saw him as a new phenomenon. He appealed to every good ensuing --
:04:12. > :04:17.instinct. He looked like he would do with many problems in the world.
:04:17. > :04:24.One problem was loss of stature internationally. In the United
:04:24. > :04:32.States we projected onto Barack Obama hopes they could not be
:04:32. > :04:37.realised by anybody. There is an certain amount of frustration.
:04:37. > :04:41.laid his economic recovery Advisory Board for to use and then you left
:04:41. > :04:49.it. Was that because you were frustrated that he did not have a
:04:49. > :04:59.clear sense of economic direction? It was always going to be to-you
:04:59. > :05:09.think that would be reviewed after two years. Why wasn't it used for?
:05:09. > :05:16.
:05:16. > :05:24.-- used for? -- useful? A poor light that has to meet in public.
:05:24. > :05:30.This makes it very rigid. -- a board like that. The public
:05:30. > :05:36.meetings are rather stilted. It became a vehicle for informal
:05:36. > :05:42.advice by some members of the group. It was not as effective as it could
:05:42. > :05:49.have been. It is also fair to say that people in the White House did
:05:49. > :05:55.not encourage a lot of outside advice. You are being diplomatic.
:05:55. > :06:01.You're saying that people like the treasures it is secretary did not
:06:01. > :06:06.want you interfering. -- Treasury Secretary. Let me invite you to
:06:06. > :06:11.interfere now from the outside. You are no longer on the board but your
:06:11. > :06:18.voice still counts. Here we sit with the United States facing a
:06:18. > :06:25.massive deficit problem. A national debt that has risen beyond 15
:06:25. > :06:30.trillion dollars. An almost unimaginable number. I never
:06:30. > :06:36.thought I would see the day when we would count dollars in trillions.
:06:36. > :06:46.How can Barack Obama avoid the kind of austerity programme that we're
:06:46. > :06:48.
:06:48. > :06:56.now seeing in Europe? The austerity programme in Europe is Europe is
:06:56. > :07:03.necessarily. His economy still has a lot of Australian. -- necessary.
:07:03. > :07:13.The dollar remains reasonably stable. It is still bes still be
:07:13. > :07:15.
:07:15. > :07:22.currency. - made a lot of strength. Some people would be saying you are
:07:22. > :07:29.complacent. I am not complacent, but nonetheless we still have a
:07:29. > :07:36.manageable problem compared to other countries. It is a peculiar
:07:36. > :07:42.its rate in Europe where you have this common currency without a
:07:42. > :07:48.common government. -- peculiar threat. That affects the degree of
:07:48. > :07:54.austerity. We are not at that stage yet. We have time to do with this
:07:54. > :08:00.problem if we do with it. But we have not dealt with its so-far.
:08:00. > :08:06.That is the long-term. In the short-term there is an argument
:08:06. > :08:14.inside the Democrat Party, that whether, with the jobless rates so
:08:14. > :08:20.high or, with the housing situation disaster its, many people with
:08:20. > :08:24.mortgages under water, there is an issue about whether the
:08:24. > :08:28.administration should continue stimulus policies, whether the
:08:28. > :08:34.Federal Reserve should continue stimulus. Do you believe they
:08:34. > :08:40.should? It is hard to argue with their policies at the moment. Back
:08:40. > :08:46.a constricted. They are going for the edge of what is possible. There
:08:46. > :08:52.is not a case for tightening up at the moment with the sluggish
:08:52. > :08:58.recovery. Prices are stable. Bemused no expectation of that
:08:58. > :09:04.changing in the foreseeable future. -- there is no expectation. The day
:09:04. > :09:11.will come for tightening up. For government, the real challenge is
:09:11. > :09:17.tightening up soon enough before things get out of hand. We are not
:09:17. > :09:24.there yet. Ben Bernanke has indicated that unbelievably low
:09:24. > :09:31.interest rates will last for up to use. You were known for your work
:09:31. > :09:37.in the Reagan administration for being the most concerned if Fed
:09:37. > :09:44.chairman bear has been. You worry with interest rates so low? --
:09:44. > :09:49.there has been. Low interest rates are not good. The situation cannot
:09:49. > :09:54.last long. I would not be forecasting two D degree that the
:09:54. > :09:59.Federal Reserve is forecasting interest rates. - made to the
:09:59. > :10:09.degree. T you believe inflation could come back much quicker than
:10:09. > :10:13.
:10:13. > :10:19.people realise?-do you believe? emerging world is not advancing
:10:19. > :10:28.very quickly. The pressure is not there yet. There is not a case for
:10:28. > :10:36.restrictive policies right now. There is no disturbance in the
:10:36. > :10:42.price side. We can sit still for a while. But me ask you about another
:10:42. > :10:46.aspect of the President was made economic policy-making. His
:10:46. > :10:50.assurance to the American people that he would regulate Wall Street
:10:50. > :11:00.so that these sort of financial meltdown we saw in 200 it could
:11:00. > :11:05.
:11:05. > :11:14.never happen again. Do you believe he has delivered on that? --b 2008.
:11:14. > :11:24.-- 2008. He has made considerable progress. More in the US than in
:11:24. > :11:30.Europe. What has he actually achieved? The financial giants from
:11:30. > :11:35.Citigroup Two Goldman Sachs. It is true to say that they are still too
:11:35. > :11:42.big to fail. They are still indulging in the financial
:11:42. > :11:52.practices that you believe they should stop doing. They are
:11:52. > :11:52.
:11:52. > :12:02.reducing those practices. The so- called Bochum rule has been passed
:12:02. > :12:07.
:12:07. > :12:12.into law. -- Volcker. You said banks should be stopped from doing
:12:12. > :12:18.proprietary trading. You said that has to stop. The President appeared
:12:18. > :12:24.to agree with you. Yet in the legislation, your simple
:12:24. > :12:32.proposition has become 300 pages of incredibly complicated legislation.
:12:32. > :12:39.The proposed regulation is 25 pages. But it has grown because there are
:12:39. > :12:45.so many extensions. Tansions. Tan said the word exemption should be
:12:45. > :12:55.pronounced loophole. He said if these Wall Street guys the smallest
:12:55. > :13:00.
:13:00. > :13:06.hole and they will run through it. -- Ted Kaufmann said. That is what
:13:06. > :13:12.makes the regulations so complicated. To you, we thought
:13:12. > :13:16.your experience, that despite all the legislation that there is still
:13:16. > :13:26.a fundamental problem with financial institutions that are too
:13:26. > :13:27.
:13:27. > :13:34.big to fail? There is always a problem. There is a realistic
:13:34. > :13:40.attack on a problem. There is a parallel effort in the UK. It is
:13:40. > :13:45.important we get broad agreement between the US in the UK as to how
:13:45. > :13:50.to handle failing big financial institutions. In the UK the
:13:50. > :13:56.Government is committed to fundamentally restructuring the
:13:56. > :13:59.biggest banks, so their merchant banking, their investment banking
:13:59. > :14:09.operations, are fundamentally separated from their retail
:14:09. > :14:09.
:14:09. > :14:16.operations. It is not happening here. We have a common concern. The
:14:16. > :14:22.concern is to protect the essential banking system. The banking system
:14:22. > :14:31.takes care of payments, because it's, makes loans. Those
:14:31. > :14:35.institutions are essential. - made deposits. We don't want back
:14:35. > :14:41.government protection extended to all these other activities. That is
:14:41. > :14:48.precisely what the UK is saying. We are doing it in a different way but
:14:48. > :14:54.it is the same problem. When the big bankers say the rule will kill
:14:54. > :15:00.them, hinder their ability to operate, and European governments
:15:00. > :15:08.say the same, because the big American banks can't trade-in out
:15:08. > :15:15.it, so we cannot sell sovereign debt, what do you say? Why it never
:15:15. > :15:23.made a regulation that would affect European countries ability to sell
:15:23. > :15:31.debts. When complaints come from the Japanese banks as well, I think,
:15:32. > :15:41.those lobbyists have really got Let's talk about something more
:15:42. > :15:42.
:15:42. > :15:51.subject to us. -- subjective. Do you think This is still prevail
:15:51. > :15:58.and? It is diminishing. When you get the kind of money that is being
:15:58. > :16:04.made on Wall Street... And still being made. The boss of JP Morgan
:16:04. > :16:14.Chase got a compensation package of $20.8 million. If you add on the
:16:14. > :16:15.
:16:15. > :16:23.bonuses it added up to $42 million. You laugh by its by Tony many
:16:23. > :16:32.Americans are not laughing. -- but I tell you. What has it done a to
:16:32. > :16:42.really change the culture? markets have been counter-
:16:42. > :16:43.
:16:43. > :16:52.productive and excessive. Times are changing. I understand the about
:16:52. > :16:57.rage that got the banks into trouble -- the outrage. Why cannot
:16:57. > :17:02.the US governments, given the context and the fact these guys are
:17:02. > :17:10.still paying themselves the most unbelievable salaries and bonuses,
:17:10. > :17:15.has not intervenes? It is a tough game for the government. It is
:17:15. > :17:21.difficult to go in and tell people how much they should be paid. That
:17:21. > :17:31.is a tough operation. How do you introduce a new morality on Wall
:17:31. > :17:35.
:17:35. > :17:44.Street's? Not by me talking or anybody talking. It is going to get
:17:44. > :17:53.taken back by performance on if the market. There are other things the
:17:53. > :18:02.government are doing or considering, for example, in France the presence
:18:02. > :18:11.says he will introduce a financials actions tax. President Obama seems
:18:11. > :18:20.to shy away from these actions. They have complained about the
:18:20. > :18:24.opener trading in Europe. Maybe some Americans would look at the
:18:24. > :18:29.Europeans and say we wish we had a government that would take on the
:18:29. > :18:35.banks like that. That is unfair. There are different ways of taking
:18:35. > :18:45.on the banks. I do not have a basic quarrel with President Obama. He
:18:45. > :18:47.
:18:47. > :18:51.has laid as a programme and pass it through Congress. I do not know of
:18:51. > :18:58.any other government that has introduced such a comprehensive
:18:58. > :19:06.bill. Let's look at one that other aspects of economic policy-making.
:19:06. > :19:10.That is the longer term issue. The debt that hangs over America. Do
:19:10. > :19:17.you see any way in which the current generation of political
:19:17. > :19:23.leaders and the system itself in the US cannot deliver a solution?
:19:23. > :19:31.political system is being tested, there is no question. I think we
:19:31. > :19:41.have to pass the test. America has some scepticism as to whether we
:19:41. > :19:42.
:19:42. > :19:46.can really pass that. We have to have the capacity to do it.
:19:46. > :19:52.close to an sustainability is the US government right now? We have
:19:52. > :19:56.talked about the $15 trillion of national debt. We have talked about
:19:56. > :20:02.the ageing population and the soaring cost in Medicare and social
:20:02. > :20:12.key security. How can you convince me that America remains solvent?
:20:12. > :20:15.
:20:15. > :20:25.will take care of it. We are going to take care of aid. How? Increase
:20:25. > :20:27.
:20:27. > :20:32.public expenditure. Medicare and Medicaid is more difficult. We are
:20:32. > :20:35.going to have to raise revenue at some point. It is all right saying
:20:35. > :20:45.we are going to have to do these things. You have seen what happens
:20:45. > :20:51.when affairs -- efforts are made through the super committee of the
:20:51. > :21:01.Congress to get some progress on spending. I can be as physical as I
:21:01. > :21:05.
:21:05. > :21:13.possibly can be. -- as critical. We are in a very politically divisive
:21:13. > :21:20.mood in the country at the moment. It is toxic. We may not get it this
:21:20. > :21:27.year. We are not going to get action this year. The critical time
:21:27. > :21:31.will come after the election. Can we have a response to the challenge,
:21:31. > :21:38.that is effective in a timely way? I have to believe that is what we
:21:38. > :21:44.can do. You said not long ago looking at this problem America has
:21:44. > :21:48.with its budget, you said, at the end of the day if we needs to raise
:21:48. > :21:56.taxes we should raise taxes. That runs against the grain of what so
:21:56. > :22:02.many Americans think. Nobody understands better than that I what
:22:02. > :22:12.we need to do. It is a great challenge. We need to combine but
:22:12. > :22:17.
:22:17. > :22:24.is Terry programmes and build the programme consistently -- budget.
:22:24. > :22:29.The tax system needs changing. you think that whoever leads
:22:29. > :22:34.Am Amr the election will have to abandon efforts to finesse
:22:34. > :22:41.some sort of middle off the ground deal. Will they have to lead on
:22:41. > :22:49.this issue in a way that President Obama has shied away from? I hope
:22:49. > :22:58.so. I think this is his opportunity. I will be disappointed if Mitt
:22:58. > :23:04.Romney is elected and does not act upon it. If he is elected that is
:23:04. > :23:09.an opportunity for him to do it. cannot end without some historical
:23:10. > :23:14.perspective on your career as an economic policy-maker. You go back
:23:14. > :23:23.through the Carter administration, Ronald Reagan, All the the
:23:23. > :23:27.President. You have lived through economic slums. Do you think this
:23:27. > :23:37.is different? Do you think America faces challenges the scale of which
:23:37. > :23:42.
:23:42. > :23:49.it has never seen before? In terms of political influence around the
:23:49. > :23:59.world, it has not been like anything in my lifetime. In the 50s
:23:59. > :24:04.
:24:04. > :24:14.and into the 60s, even the 70s, there were other countries and we
:24:14. > :24:16.
:24:16. > :24:24.have made some mistakes. Everybody makes mistakes. It may be a problem.