I was not paying attention to inflation in the late 1970s. I was trying to get a girlfriend. I was trying to get through college. I was well, I’ll leave the rest up to your imagination.
So when I talk about Volcker and my own views about the great inflation of the 1970s I admit to you that I am abstracted from it, using my charts and whatnot to present a case.
Ed Yardeni is an academic and his chosen academy is Economics. He has a nice blog post about Volcker and his battle with the famous inflation of the 1970s.
Volcker didn’t waste any time attacking inflation. Eight days after starting his new job, he had the FOMC raise the federal funds rate on August 14, 1979, by 50 basis points to 11.00%. Two days later, on August 16, he called a meeting of the seven members of the Federal Reserve Board to increase the discount rate by half a percentage point to 10.50%. This confirmed that the federal funds rate had been raised by the same amount. Back then, as I previously noted, FOMC decisions weren’t announced. The markets had to guess.
This chart of the various Fed heads and the CPI looks curiously like our chart of the Continuum, does it not? A long, post-Volcker wellspring of disinflation.
The expressions of of outrage against Jerome Powell for that micro-moment in time a year ago were nothing compared to what faced Volcker as he did what he had to do. But again, last year’s thing was just a little microcosmic hint of what would be if we were to go there again (“there” being breakout inflation fears that would point the finger directly at Bernanke and friends with Powell left to clean up duty).
The public reaction to Volcker’s policy move was mostly hostile. Farmers surrounded the Fed’s headquarters building in Washington with tractors. Homebuilders sent Volcker sawed-off two-by-fours with angry messages. Community groups staged protests around the Fed’s building. Volcker was assigned a bodyguard at the end of 1980. One year later, an armed man entered the building, apparently intent on taking the Board hostage.
Let’s leave aside the fact that costs have risen in the most critical areas across the economy (healthcare, energy over time, food…) while technology has suppressed costs in others. Let’s suspend disbelief and call the CPI an accurate gauge of inflation (or lack thereof). Doctor Ed is a historian as much as anything else and is worth your time if you’d like to see a brief chronicle of Volcker’s time at the Fed. Dr. Ed ends his post thusly…
“Thank you, Paul Volcker.”, which seems to be a common sentiment.
Let’s transition into my editorial comments.
Volcker was an inflation hero. But the vampires who followed, most notably Greenspan (who self-aggrandized in the wellspring of post-Volcker goodwill) and Bernanke (who sent the Greenspan system of Inflation onDemand steroidal) were not heroes.
Ha ha ha, could not resist…
As noted yesterday (in the post linked at top), Jerome Powell would have the chance to be the next great inflation hero should the bond yield Continuum and other inflation gauges dictate. The Fed does what the Fed does; it’s just that Volcker happened to be in a unique situation and the rest of them have lived in a Continuum of sameness ever since.
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