Volcker and the Great Inflation: Reflections for 2022

Misis Wire ^ | 09/21/2022 | Alex J. Pollock

[Grandpa Drudge]

The celebrated Paul Volcker (1927-2019) became Chairman of the Federal Reserve Board 43 years ago on August 6, 1979. The 20th-century Great Inflation, stoked by the Federal Reserve and the other central banks of the day, was in full gallop in the U.S and around the world. In the month he started as Chairman, U.S. inflation continued its double-digit run—that August suffered a year-over-year inflation rate of 11.8%. On August 15, the Federal Reserve raised its fed funds mid-target range to 11%, but that was less than the inflation rate, so a nominal 11% was still a negative real interest rate. How bad could it get? For the year 1979, the December year-over-year inflation was an even more awful 13.3%. At that compound rate, the cost of living would double in about five years.

Everybody knew they had an inflationary disaster on their hands, but what could be done? They had already tried “WIN” (“Whip Inflation Now”) buttons, but inflation was whipping them instead. In this setting, “The best professional judgment among leading economists was that Americans should view the problem of inflation as being…intractable,” wrote Volcker’s biographer, William Silber. Leading Wall Street forecaster Henry Kaufman, for example, was pessimistic in 1980, opining “that he had ‘considerable doubt’ that the Fed could accomplish its ultimate objective, which is to tame inflation. He added for good measure that the Fed no longer had ‘credibility in the real world.”

Those days are now most relevant. Although Silber could write in 2012, “Inflation is ancient history to most Americans,” today it is upon us once again. What can we re-learn?

[Grandpa Drudge]

HERE WE GO AGAIN!

We are now well underway in a repeat of "The 20th-century Great Inflation, stoked by the Federal Reserve and the other central banks of the day, was in full gallop in the U.S and around the world.”

https://mises.org/wire/volcker-and-great-inflation-reflections-2022

Key point from the article:

"The inflationary problems of Volcker’s days and ours are fundamentally linked to the demise of the Bretton Woods system in 1971, when the United States reneged on its international commitment to redeem dollars in gold."

[sauropod]

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[joshua c]

i remember the 18% mortgages and 21.5% prime which was necessary to kill the 13% inflation rate

friends had negative amortization mortgages. every month they owed more. their payment did not cover the interest.

i remembered it. why didnt the fed reserve governors?

or maybe they dont care

[BfloGuy]

Until the Fed cranks interest rates above the rate of inflation, it will continue.

Of course, if Congress would stop borrowing money (which is all printed out of thin air), half of the Fed’s job would be done for them. They won’t. They will point fingers at the Fed for “ruining” the economy while they continue the job themselves.

[Mr. Blond]

Volker and Reagan also cut taxes, which resulted in more goods produced, and consumer spending took money out of circulation. Biden intends to raise our taxes to take money out of circulation.