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The Women’s Economic Round Table sponsored a panel discussion in New York that featured New York Federal Reserve Bank President Timothy Geithner, former NY Fed President and FOMC Chairman Paul Volcker, former NY Fed chief and FOMC vice-chairman Gerald Corrigan, and former NY Fed President William McDonough. The discussion of monetary policy making amongst some of our most seasoned central bankers ran the gamut from inflation, to asset bubbles, to communications, to LTCM and hedge fund supervision.
Q: What worries you the most about the current economic landscape?
William McDonough: “The thing that worries me most–in fact, the only thing that worries me a great deal–are what are popularly called the global imbalances. The United States of America last year needed to import $800 billion of other people’s savings; six and a half percent of gross domestic product. Unlike the days of yore when it was rich countries that were exporting savings to poor countries, it is now emerging market countries–China, Brazil –which are not investing enough in their own societies and sending money to the United States. It seems to be a good deal. We are the importer of last resort. They want to export things. We have very well developed financial markets–very creative financial services companies. And, so we are the place to invest of last resort.
In my view, this is not in the interest of the United States. We are a country that has a very serious problem with our aging population, of which I’m part. The Social Security system and the Medicare system on an actuarial basis are both in deep bankruptcy. Therefore, it is not appropriate for us as a society to be living higher than we should on other people’s savings from poor countries. China has 400 million people living below the poverty line; 800 million people living in poor rural areas. It makes no sense that they have a trillion dollars in reserves and that we, the people of the United States, are living better as a result of it. We have to do a better job. They have to do a better job in managing their economies. This is a situation which, left to its own devices, is one that will hit a brick wall. The only question is when.”
Gerald Corrigan: “The first point I would make is related somewhat to the one Bill just made–its kind of the other side of it. That is that the United States savings rate is virtually zero. The household saving rate is negative. And for the reasons that Bill mentioned and a whole bunch of other reasons as well, this is a potentially very dangerous situation, not only in terms of economic and financial terms, but it brings with it, I think, some potentially very serious problems down the road in terms of the well being of our own citizens. You know, as I said, that’s very closely related to Bill’s point about imbalances.
Q: What worries you the most about the current economic landscape?
William McDonough: “The thing that worries me most–in fact, the only thing that worries me a great deal–are what are popularly called the global imbalances. The United States of America last year needed to import $800 billion of other people’s savings; six and a half percent of gross domestic product. Unlike the days of yore when it was rich countries that were exporting savings to poor countries, it is now emerging market countries–China, Brazil –which are not investing enough in their own societies and sending money to the United States. It seems to be a good deal. We are the importer of last resort. They want to export things. We have very well developed financial markets–very creative financial services companies. And, so we are the place to invest of last resort.
In my view, this is not in the interest of the United States. We are a country that has a very serious problem with our aging population, of which I’m part. The Social Security system and the Medicare system on an actuarial basis are both in deep bankruptcy. Therefore, it is not appropriate for us as a society to be living higher than we should on other people’s savings from poor countries. China has 400 million people living below the poverty line; 800 million people living in poor rural areas. It makes no sense that they have a trillion dollars in reserves and that we, the people of the United States, are living better as a result of it. We have to do a better job. They have to do a better job in managing their economies. This is a situation which, left to its own devices, is one that will hit a brick wall. The only question is when.”
Gerald Corrigan: “The first point I would make is related somewhat to the one Bill just made–its kind of the other side of it. That is that the United States savings rate is virtually zero. The household saving rate is negative. And for the reasons that Bill mentioned and a whole bunch of other reasons as well, this is a potentially very dangerous situation, not only in terms of economic and financial terms, but it brings with it, I think, some potentially very serious problems down the road in terms of the well being of our own citizens. You know, as I said, that’s very closely related to Bill’s point about imbalances.
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