Speaking in front of a packed Bailey Hall, former Treasury Secretary Henry Paulson entertained questions from students on topics ranging from the size and power of Goldman Sachs to the role of the Federal Reserve in the US economy. But the most interesting moment of the evening came when a student directly asked Paulson whether he thought the US was in a liquidity trap (situation where monetary policy is unable to stimulate the economy). Paulson completely jumped around the question, instead talking about how much respect he has for Ben Bernanke and saying that Americans can’t expect the Chairman to solve all of the structural problems of the US economy.
So why did he dip and dodge? It’s certainly possible that as an ex-government official, Paulson prefers not to criticize those who are currently doing the same difficult job he was doing less than two years ago. But I think it’s more likely that Paulson avoided the question because he is poignantly aware of the persistent fragility of the American economy. A headline like “Former Treasury Secretary Says US in Liquidity Trap” could have serious reverberations in the financial markets.
Look for a full analysis of his talk in the next issue of the Review.
