Former Federal Reserve Chairman and current Volcker Alliance Chairman Paul Volcker spoke with FOX Business Network’s (FBN) Neil Cavuto about states balancing their budgets and interest rates. Volcker said, the biggest problem “is many states are not taking care of their pensions, which you’re obligated to do” and New Jersey Governor Chris Christie is “just postponing the pain.” Volcker went on to say that, states shouldn’t “play games with the budget. Don’t postpone expenditures until next year.” Volcker spoke about interest rates saying, “at some point, rates are going to have to go up. I think that’s inevitable” and that “you don’t operate an economy on zero interest rates.”
On whether he factored in market reaction when he was Chairman of the Federal Reserve
“Of course. You’re always wondering about how the markets would react. But we’re talking about something more important than whether the rates go up by…some infinitesimal amount in the next month, six months from now, whatever.”
On the Federal Reserve possibly raising rates
“Look, at some point, rates are going to have to go up. I think that’s inevitable. Everybody’s said that if we have a good operating economy, you don’t operate an economy on zero interest rates. But that’s a great cause of speculation in the market. You like to talk about it. Others people like to talk about it. I like to talk about it. I think it’s something more — something more important than whether we’re going to have a small increase in interest rates this month, next month, next year.”
On states balancing their budgets through a number of questionable means
“Right. No question. No, Congress should not … not only balance a budget which surely isn’t balanced. But biggest single problem is many states are not taking care of their pensions, which you’re obligated to do.”
On New Jersey balancing their budget
“New Jersey is a prime suspect in that particular respect. They’re not alone, but they are certainly important in New Jersey… They’re just postponing the pain, and you’ve got to give up to that at some point, because these are obligations they’ve undertaken. They’re not to be changed. New Jersey, it’s not just this present government, it’s been bipartisan…bipartisan neglect in New Jersey for some years.”
On the fiscal stewardship of New Jersey
“That’s right. And it’s not — just to be clear, it’s not just New Jersey. We’re doing this — the states are under strain. Many states are under strain financially. They’ve been pushing back on infrastructure, they’ve been pushing back on education, they’ve been pushing on other services. But they’re hiding the extent of the financial problem they have so that the voter doesn’t realize the trouble that they’re in and they can’t make effective decisions on what they want to spend money on, whether you need increase in taxes or whatever, without having the facts. So — point is simply get the facts out there. Get them out there clearly, and don’t play games with the budget. Don’t postpone expenditures until next year.”
On whether governors should increase taxes
“I don’t know if they have to dramatically increase taxes. Some of them have to look at it. California was in a pretty big hole couple of years ago, and they did, to a greater extent, bite the bullet. They increased taxes, they did some other things, and they’re looking better at the moment.”
On whether California gets his highest mark
“No, Virginia gets our highest marks. Virginia has been a prudent state for a long while. They’ve had pretty steady revenues and they get high marks for their responsibility.
On what Virginia did right that other states don’t
“I think it’s maybe engrained in them their political environment. Somehow they have paid more attention to this. They have pension obligation as well. They have obligations, but they pretty much kept up with them.”
On whether New Jersey can catch up
“Well, what they have to do is they’re going to spread out over a period of time inevitably to catch up. And you spread it out over, as New Jersey was intending to do and then they delayed it, saying they’re going to do it. But other states — make a program where, over a 10-year period, 20-year period, they will provide a little more than they otherwise would do and catch up, by the time some of these retired people are actually retiring.”
On New Jersey’s pension
“Well, look, you can’t criticize the report and say it’s unrealistic, because we’re pointing to the facts. That’s all we’re doing. The lack of realism is for people who don’t want to recognize the facts and deal with the problem that is there. If they can’t pretend they don’t have the pension obligations. They can’t pretend that they don’t have to pay interest on the debt that they’re issuing.”
On whether we have a debt commission that was repudiated by both parties
“Every week, we’re reading about some disaster from the revered Secret Service making problems, or the IRS, or what happened in Katrina some years ago. What happened to Obamacare? Why wasn’t that better prepared? All these not very glamorous problems need attention…My favorite quotation in this whole thing from Thomas Edison — I don’t know whether he’s Democrat or Republican, whatever he is. Everybody thinks Thomas Edison, pretty sensible guy. He said, “Vision without execution is hallucination.” Our problem is we’ve got lots of vision in this country. We’re falling down on execution. And we’ve got quite a lot of hallucination these days.”
On entitlements
“So we are providing some kind of antidote to this willingness to put it off. The easy thing to put it off. We’re trying to point out what things are not going right and the implications of that. And the implications are pretty serious. If the states aren’t meeting their pension obligations over a period of years, they can meet them this year, next year, the following year. Where we look at — they’re building a hole that they will find it very difficult to extricate themselves.”
On federal government debt
“Well, look, the federal government budget problem, the federal government debt, is in a class of its own. They have a certain flexibility that states don’t have.”
On the AIG lawsuit bailout
“I think in the end he said they were right to do so. That was in the midst of an enormous crisis. They took very strong action. They wanted to be compensated for the risk that was involved. And I don’t think anybody ever looked back and, say, second guess that particular proposition.”
Fox Business Network
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