Posted on 12/16/2019 7:29:11 AM PST by Moonman62
[Volcker's] obituaries were disappointing for them almost uniformly promoting the fiction of Volcker as inflation slayer. Such a view doesn’t square with simple economic history. Indeed, explicit in the accepted wisdom that Volcker was “inflation’s worst enemy” (Hoover Institution’s John Taylor) is that economic growth causes inflation. As Phillips Curve devotee Neil Irwin put it in the New York Times, Volcker allegedly beat inflation “at the cost of what would become the worst recession in the seven decades between the Great Depression and the global financial crisis.” In the analysis of seemingly everyone, job loss and greatly reduced prosperity were necessary for Volcker to slay the dragon of rising prices. Which is all the evidence we need that Volcker’s policies weren’t the cause of price declines. To suggest otherwise speaks to a very fundamental misunderstanding of prices, and how economies work.
Stating what should be obvious, the answer to rising prices is always and everywhere economic growth. Growth is yet again an effect of investment, and investment is all about the creation of more goods and services at prices that continue to fall. Volcker as inflation fighter is quite a bit more hagiography than serious biography.
Basically Paul Volcker’s role in what took place in the early ‘80s is well overstated. This isn’t a knock on him as much as it’s a knock on oversold notions so many have about the Fed. By the accounts of many Volcker was a good man. He should be given his due because he was. At the same time, it does nothing for his memory and good name to revive what isn’t true, and which runs counter to logic. The Phillips Curve has long been dead. Let’s not use Volcker’s sad passing to revive it.
(Excerpt) Read more at realclearmarkets.com ...
"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."
Milton Friedman
Output is economic productivity and Volcker severely hurt output.
Volker limited the money supply, and then the money markets created 21% interest rates on mortgages (this is long before 0% mortages with cash at closing scam that excess money created a crash.
21% payouts on CDs held in banks.... lot of older folks here will remember that. Banks had to PAY US for the money we put in there. Not how they do now and get member Fed Reserve banks to ship them money at 0% and then force us to pay 3 to 4 %.
Because if the money in circulation was left to the real world there would be NO way for these bank hucksters to PRINT electronically all this money. IT IS THEIR FAULT we are where we are.
Suffice to say 21% interest did put a stymie on business productivity, but for savers... people who save their cash— it was fantastic to ladder the instruments. 10K at a time at 21% payout is better than Vegas modest wins.
Nonsense. I recall quite clearly seeing the monthly inflation rate fall to zero sometime in 1982 or 1983. This was utterly astounding given that it was at over 8% just 2.5 years earlier. Yes, Volcker did a lot of that, with backing from Reagan.
Amazing that anyone could be as ignorant as the author of this piece.
There was no economic growth occurring during the ‘70s stagflation, which is exactly why the Phillips Curve was discredited then. It predicted that the rampant inflation would be accompanied by growth, not stagnation.
Anyway Reagan understood and supported what Volcker was doing to choke off inflation. It was the prescription promoted by Milton Friedman and the Monetarist School. Stop the growth of the money supply long enough to break the inflationary cycle, and don’t allow credit growth in excess of the economy.
Anyway Reagan understood and supported what Volcker was doing to choke off inflation.
...
That was one of Reagan’s mistakes. Reagan also raised taxes at one point, another mistake.
Most of the credit should go to the American people for taming high inflation, not just for their natural ability to grow the economy, but also the incredible growth of the technology sector. Reagan got the government out of the way enough for the American people to do their thing.
Volcker caused a nasty recession and set the foundation for the savings and loan crisis. He doesn’t deserve credit for anything more than that.
Banks never received loans from the Fed at 0%. For the first 7 years of Obama's term, they lent trillions to the Fed at 0.25%, while the Fed earned 3% and up.
“Most of the credit should go to the American people for taming high inflation,”
Oh? And what exactly did we do that we weren’t doing in the Carter years?
I’m curious to know if you were an adult then to know what the 70s were like. My guess is “no”.
The main drivers of inflation in the 1970’s were the end of Bretton Woods, Nixon’s price controls, the oil price shocks and leaders who lacked faith in the American people.
The American people were being held back.
Member banks. Lots of banks are not “member” banks. I see you like the (((”private bank of last resort”))). And, wasn’t talking about loans, FRiend. You need to read more.
No Patriot could defend their actions, not a US Patriot anyway. They are a govt. unto themselves.... until they are NOT. See: Rothschild See: Bank of England. We cannot allow this to continue.
That bizarre claim is entirely yours, no one else has ever made anything like it, and I'm curious what rationale you can possibly come up with.
Since you ducked giving an explanation in your last post, my guess is that you don't have an explanation. Not a surprise, because there isn't one.
Nor did you say how old you were in the 1970s. Considering your odd theories I doubt that you were there.
Banks had to PAY US for the money we put in there. Not how they do now and get member Fed Reserve banks to ship them money at 0%
You think that member banks loan money to non-member banks at 0%?
That's even funnier than what I thought your original claim was.
And, wasn’t talking about loans,
Oh, member banks "ship" money, they don't loan money, to non-member banks at 0%?
Tell me more!!
Most of the credit should go to the American people for taming high inflation. They have the natural ability to grow the economy when the government gets out of the way. The incredible growth of the technology sector and the role of venture capital was particularly significant in reducing inflation. Reagan got the government out of the way enough for the American people to do their thing.
Economic growth increases supply making price increases from shortages less likely. Economic growth also increases government revenue, reduces dependency on government redistribution, and eliminates the need for stimulus spending. Growth of the technology sector makes the economy more efficient and brings down prices. Reagan had faith in the American people, unlike Nixon, Carter, or Volcker.
On the flip side of the coin, everywhere there is high inflation, there is damage to the supply side of the economy. Zimbabwe and Venezuela are recent examples of that.
Volcker caused a nasty recession and set the foundation for the savings and loan crisis. He doesn’t deserve credit for anything more than that.
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