Singapore Volcker Recession
Wong Maye-e  /  AP
Paul Volcker, former chairman of the U.S. Federal Reserve, warned that the U.S. and Europe are facing a considerable recession as a crisis in the financial system impacts production and consumption.
msnbc.com news services
updated 10/14/2008 10:44:12 AM ET 2008-10-14T14:44:12

Former U.S. Federal Reserve Chairman Paul Volcker said Tuesday the U.S. and Europe face a "considerable recession" as a global financial crisis begins to hurt consumer demand and industrial production.

"I've seen a lot of crisis, but I've not seen anything quite like this one," Volcker said in a speech in Singapore. "I don't think we can escape damage to the real economy. I think we almost inevitably face a considerable recession."

Volcker, 81, said pledges this week by U.S. and European governments to pump hundreds of billions of dollars into ailing banks has helped boost investor confidence.

Asia and European stock indexes rose for a second day Tuesday after the Dow Jones industrials average surged 11 percent on Monday, its biggest one-day jump since 1933.

"These kinds of measures — government guarantees and interventions — are really distasteful," said Volcker, who was Fed chief from 1979 to 1987. "However distasteful, I'm afraid they were necessary in this emergency to restore some sense of stability and confidence."

The Bush administration on Tuesday unveiled a plan to inject $250 billion into beleaguered U.S. banks to beat back a credit crisis that threatens to swamp the global economy.

The program calls for the government to buy preferred shares in qualifying financial institutions, with stakes in each institution limited to $25 billion or 3 percent of risk-weighted assets.

"Those banks have been nationalized, overtly or not overtly, which is something that hasn't happened before in the history of developed countries," Volcker said. "How to wean them from government support? That is the challenge of the future."

The Associated Press and Reuters contributed to this report.

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