Paul Volcker was Alan Greenspan's predecessor at the Federal Reserve. He was chairman of America's central bank for eight years until 1987. He is widely credited with breaking inflation's hold on the US economy. Recently, Mr Volcker has headed up the inquiry into the UN food for oil scandal.
Mr Volcker spoke to Sir Howard Davies for the BBC Radio 4 programme The Greenspan Years (to be broadcast at 2000 GMT on Monday, 2 January, 2006).
ON GREENSPAN'S REPUTATION
I think it is reasonably secure but you know, it depends upon what happens in the next year or two. We seem to be in a peculiar situation with so much dependence on the dollar around the world, and such a build-up of dollar assets, and the equivalent. The other side of it, this big current account deficit in the United States which keeps putting dollars out there. We will see how that all comes to a conclusion in the end.
And I wouldn't blame that all on the Federal Reserve if we had a problem. But I think how this works out in the long run is yet to be seen.
RETIREMENT ADVICE TO GREENSPAN
The only time I offered a bit of advice to him, when he had been there some years, was to how to gracefully resign or leave office at an appropriate time. He listened very carefully, and didn't say anything, and ten years later he was still in office. I don't think he took my advice very seriously (laughs) on how to gracefully leave office. He's leaving gracefully but ten years later.
ON GREENSPAN AND DISSENT ON THE FED BOARD
But it has surprised me that this board seems to have an unspoken - even maybe spoken - feeling that you don't dissent, that is not the case historically, certainly not with Arthur Burns. It wasn't the tradition when I was chairman. And that seems a little odd to me because it hasn't been a tradition over a period of time, and I guess that reflects to some degree the fact that he [Greenspan] has been there so long and had this kind of centre of attention for so long.
I do not think you should dissent for frivolous reasons, and I think it is important for the central bank as much as possible to show a united front. I don't doubt that. But it gets to the point where people think it is somehow impolite to dissent-I think that goes a little too far.
ON INFLATION TARGETING
HOWARD DAVIES: Alan Greenspan has been sceptical about the value of inflation targets as operated by the Bank of England amongst others. Ben Bernanke [Alan Greenspan's successor at Chairman of the Federal Reserve] has been pretty positive, in some academic papers, about inflation targets. Do you expect the Fed now to switch to an inflation target, and if so would that be a good thing?
PAUL VOLCKER: Well I think that there's clearly going to be some effort in that direction, and there is some sentiment. I must say I just am allergic to the term "inflation targeting." I don't understand why we are targeting inflation. I was brought up to say inflation was a bad thing; we target stability, not inflation.
And I certainly want to see stability but I don't want to see inflation. But whether you want to encompass all of that in a precise statistical guideline is a little bit questionable to me. Those statistics are not that accurate anyway, so there is a lot of room for fudging an inflation figure.