Volcker: China's rise highlights relative US decline

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<TABLE border=0 cellSpacing=0 cellPadding=0 width=452><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published September 30, 2009

</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Volcker: China's rise highlights relative US decline

<TABLE class=storyLinks border=0 cellSpacing=4 cellPadding=1 width=136 align=right><TBODY><TR class=font10><TD width=20 align=right></TD><TD>Email this article</TD></TR><TR class=font10><TD width=20 align=right></TD><TD>Print article </TD></TR><TR class=font10><TD width=20 align=right></TD><TD>Feedback</TD></TR></TBODY></TABLE>(NEW YORK) The rise of China and other emerging economies has underscored a decline in the comparative economic and intellectual leadership of the United States, former Federal Reserve chairman Paul Volcker says.

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</TD></TR><TR><TD bgColor=#fffff1><TABLE border=0 cellSpacing=0 cellPadding=0 width=124 align=center><TBODY><TR><TD vAlign=top>'This recovery will be slower. We can't just pump up consumption, housing again.'
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- Paul Volcker,​

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ex-Fed head​

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</TD></TR></TBODY></TABLE></TD></TR></TBODY></TABLE>'I don't know how we accommodate ourselves to it,' Mr Volcker, an economic adviser to President Barack Obama, said in an interview with PBS's Charlie Rose taped on Monday in New York. 'You cannot be dependent upon these countries for US$3-4 trillion of your debt and think that they're going to be passive observers of whatever you do.'
The former Fed chairman also said unemployment at 9.7 per cent will slow the pace of recovery from the US recession as consumers default on mortgages and consumer loans. Moreover, commercial real estate loans are likely to cause further losses for lenders.
'This recovery will be slower,' Mr Volcker said. 'We can't just pump up consumption and pump up housing again.'
The Group of 20 (G-20) leaders, meeting in Pittsburgh last week, announced plans for more durable economic growth, including reducing US dependence on overseas capital and cutting the reliance of emerging nations such as China on exports.
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</TD></TR></TBODY></TABLE>World leaders decided that the G-20, which includes emerging economies such as China and Brazil, will replace the Group of Eight (G-8) as the main forum for global economic coordination. The shift illustrates how the excesses that led to the financial crisis have compelled industrial nations to share governance of the world economy.
The growth of emerging economies is 'symbolic of the relative, less dominant position the United States has, not just in the economy but in leadership, intellectual and otherwise', Mr Volcker said.
The G-20 accounts for about 85 per cent of global gross domestic product (GDP) and was created after a spate of currency devaluations plagued emerging markets from Russia to Thailand in the 1990s. The G-8, which comprises the most advanced industrial economies of Europe and North America plus Japan and Russia, accounts for about half of global GDP.
China has overtaken Germany to become the world's third-largest economy and may soon become the biggest exporter. It passed Japan a year ago as the main foreign investor in US government debt. China, Russia, Brazil and India together hold about 42 per cent of international reserve assets, excluding gold.
'I would like to think that given the history of the past, given the strength, actual and potential of the American economy, we can still provide a kind of indispensable element of leadership here,' Mr Volcker, 82, said.
'But it's not going to be dictatorial, I'll tell you that. It is very hard to herd these cats together.'
Mr Volcker repeated that under a new regulatory structure, the Fed should be given primary responsibility for supervising banks rather than a council of regulators led by the US Treasury.
The Treasury has 'no professional background and no traditions in the area of banking supervision', Mr Volcker said. -- Bloomberg [/FONT]
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