Paul Volcker knocks the ball out of the park through his autobiography, published at the advanced age of 90. There’s something endearing about Volcker’s style: he comes off as a chip off the old block, approachable, a wise and simple man.
Fiscal standards became unbridled proceeding August 1971 when the last vestige of the US Dollar Gold Convertibility Standard was dismantled by fiat. The money supply grew like never before and it eventually set off a wave of price inflation in major markets including the price of gasoline and cost of borrowing. Geopolitical events unraveling in the Middle East weren’t helping, and the US Dollar itself risked being speculated into oblivion.
Paul Volcker may be considered “The Fed’s Last Hawk”. As chief of the Fed, he administered the medicine necessary to extinguish the United States’ epoch of inflation, or as he termed it, the Great Inflation. As the newly appointed Chairman of the Fed in 1979 with the inflation rate over 13 percent, Volcker wasted no time, immediately raising interest rates. His mission: “lead a war against inflation.”
“I suppose if some Delphic oracle had whispered in my ear that our policy would result in interest rates of 20 percent or more, I might have packed my bags and headed home.”
Indeed, at its peak: “the rate on three-month Treasury bills eventually exceeded 17 percent, the commercial bank prime lending rate peaked at 21.5 percent, and, most sensitively, mortgage rates surpassed 18 percent. Those rates had never been seen before in our financial history.” The unemployment rate proceeded to creep over ten percent, and a wave of bankruptcies pounded the Savings & Loans lending industry, crippling the economy into recession as the wicked chimera of stagflation roared.
Stagflation is the economic phenomenon where price inflation and economic recession intersect. As a central banker, it is the most difficult balancing act, a central banking conundrum: do you raise the interest rate to combat inflation, or do you lower it to combat the recession? If you raise it to calm prices, you also cause the cost of borrowing to go up. If you lower it to stimulate financial facilities, money supply growth continues and the price level never ceases to increase.
History proved Volcker right. Leading the Fed, his aggressive approach against inflation got prices under control, despite the severe market disruptions it caused. This then set the stage to combat the recession, and by the end of his term in 1987 both inflation and unemployment were normalized.
“Now the environment is quite different. The generation with direct experience of stagflation is passing on.”
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From the Publisher
Some Great Images from the Book
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My swearing-in as Fed chairman, with President Carter (left) and Barbara (second from right). Official White House photo; personal collection of Paul Volcker |
Meeting with President Jimmy Carter in the White House. Official White House photo; personal collection of Paul Volcker |
Meeting with President Reagan in the Oval Office, with Donald Regan (second from left) and James Baker (right). Official White House photo; personal collection of Paul Volcker |
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With my two immediate successors at the Fed, Alan Greenspan (right) and Ben Bernanke (left), in 2005. Photo by Britt Leckman. Photo courtesy of Federal Reserve Board |
At the Taj Mahal with Anke in 2007. Personal collection of Paul Volcker |
'If you keep at it, eventually you’ll catch a big one.' Ristigouche Salmon Club fishing guide Brian Irving holds my thirty-seven-pound catch, my biggest ever. Photo by David LeBlanc, executive Director, Restigouche River Watershed Management Council |
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