Paul Volcker is back, and he warns of tough times ahead

Volcker has been chosen by President-elect Barack Obama as a special economic advisor. His 'no pain, no gain' fiscal strategy worked in the '80s, and there's no sign he's softened that philosophy.
By Ralph Vartabedian
LA Times

December 8, 2008

A generation ago, Paul A. Volcker was a household name, the Federal Reserve chief who waged a hard-nosed but successful battle against virulent inflation that clouded the nation's economic future. He did it by engineering a horrific recession, clamping on the financial brakes and sending the economy into a tailspin in 1981.

Nobody knew whether his strategy would work. It certainly caused widespread pain. But by 1986, double-digit inflation was gone and price increases had dropped to about 2% annually, setting the stage for the next two decades of economic stability.

Now Volcker is back, tapped by Barack Obama as a special economic advisor. And if the president-elect follows his advice on the current economic crisis, there could be pain again and no doubt many protests -- but also the possibility of long-term benefits.

In speeches, interviews, public policy reports and congressional testimony, Volcker, 81, has laid out a fairly clear outline of what he thinks is wrong with the present-day financial system and the government's management of the economy.