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Volcker was less austere and more pragmatic than his reputation

A more nuanced review of Mr. Volcker’s government life shows he was less austere and more pragmatic than his reputation—and his own memory, suggest. In fact, he regularly bent or rewrote the rules to cope with the chaos enveloping the world.

Mr. Volcker, then undersecretary of the U.S. Treasury, was tasked by President Richard Nixon with closing the gold window.

Upon assuming the Fed chairmanship in 1979, Mr. Volcker sought creative ways to defeat inflation, and decided to target the money supply. That led to wild gyrations in interest rates and two recessions in short order that devastated the economy. In 1982, he began slashing rates even though inflation was still in high single digits.

He feared high rates were destabilizing the world-financial system. Throughout 1982 he became increasingly worried Mexico would default, imperiling the dozens of big U.S. banks that had lent to it. 

Mr. Volcker worried that if Continental Illinois failed, depositors would flee other big banks in similar circumstances.

‘What this country needs to shake us up and give us a little discipline is a good bank failure. But please, God, not in my district.’”

For all his public disapproval, if Mr. Volcker had been running the Fed for the past 10 years, he would have made many of the same decisions his successors did.

Greg Ip WSJ 9 December 2019


Kaletsky menar att det var Paul Volcker som ledde återgången till "demand management".

- In the United States, the return to demand management began as early as the summer of 1982, when a three-year recession and the bankruptcy of the Mexican government persuaded the Fed that its experiment with monetarism had gone too far.

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