No.
Actually the exact opposite:
Carter appointed Volcker as Fed chairman, who in turn raised interest rates to phantastically painfully high levels.
That hurt in the shortrun, but it ended stagflation.
Reagan got the credit. Completely undeserved.
When Jimmy Carter was elected... worst
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Actually the exact opposite:
Carter appointed Volcker as Fed chairman, who in turn raised interest rates to phantastically painfully high levels.
That hurt in the shortrun, but it ended stagflation.
Reagan got the credit. Completely undeserved.
Hygro
soundcloud.com/hygro/
What ended stagflation was the deregulation of natural gas - by Carter. Stagflation was caused by a spike in real oil prices (caused by collusion) so that it took more real resources to have the same economic output as before, represented by higher prices of all goods relative to the money supply at all money supply.
Deregulated natural gas not only provided energy for our economy at lowered prices but bid down the price of oil, now competing with gas, and then we had two cheaper sources of energy instead of no sources of relatively cheap energy.
The demand side inflationary causes of the 1970s (i.e. the parts relating to monetary easing) were minor in comparison and was a consequence of the (correct) action against a supply shock--the catch 22 of choosing the latter between 1) very high unemployment and minor inflation, vs 2) high unemployment and moderate inflation.
America has this idea that inflation is horrible because the 70s. The 70s taught us that energy shortages are horrible, which cause supply side inflation, which results in a situation of over-investment (you now have more, say oil, infrastructure invested than needed) but the same money chasing fewer things. That causes unemployment and higher prices. So the goals are two fold: find new energy at reasonable cost and shore up unemployment with the hand you've been dealt. The latter means stimulus/monetary easing, but you're supply constrained so stimulus will be more inflationary than usual. That's fine, because the inflation caused by stimulus (i.e. demand side inflation) is not reducing real purchasing power, real wages, real standards of living, etc. They are just changing arbitrary numbers on paper as we adjust to a new equilibrium. Demand side inflation is not particularly harmful, particularly if below 40% a year.
Deregulated natural gas not only provided energy for our economy at lowered prices but bid down the price of oil, now competing with gas, and then we had two cheaper sources of energy instead of no sources of relatively cheap energy.
The demand side inflationary causes of the 1970s (i.e. the parts relating to monetary easing) were minor in comparison and was a consequence of the (correct) action against a supply shock--the catch 22 of choosing the latter between 1) very high unemployment and minor inflation, vs 2) high unemployment and moderate inflation.
America has this idea that inflation is horrible because the 70s. The 70s taught us that energy shortages are horrible, which cause supply side inflation, which results in a situation of over-investment (you now have more, say oil, infrastructure invested than needed) but the same money chasing fewer things. That causes unemployment and higher prices. So the goals are two fold: find new energy at reasonable cost and shore up unemployment with the hand you've been dealt. The latter means stimulus/monetary easing, but you're supply constrained so stimulus will be more inflationary than usual. That's fine, because the inflation caused by stimulus (i.e. demand side inflation) is not reducing real purchasing power, real wages, real standards of living, etc. They are just changing arbitrary numbers on paper as we adjust to a new equilibrium. Demand side inflation is not particularly harmful, particularly if below 40% a year.
Gucumatz
JS, secretly Rod Serling
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Historically I think Carter is going to rank like a President Pierce. He happened, certainly wasn't terrible but won't ever be remembered in comparison to the presidents around him.
If I had to give a personal rank of the 20th century Presidents it would go like this:
1. FDR
2. Johnson
3. Nixon
4. T. Roosevelt
5. Clinton
6. Truman
7. Taft
8. Wilson
9. Kennedy
10. Bush Senior
11. Carter
12. Coolidge
13. Ford
14. Eisenhower
15. Harding
16. Reagan
17. Hoover
If I had to give a personal rank of the 20th century Presidents it would go like this:
1. FDR
2. Johnson
3. Nixon
4. T. Roosevelt
5. Clinton
6. Truman
7. Taft
8. Wilson
9. Kennedy
10. Bush Senior
11. Carter
12. Coolidge
13. Ford
14. Eisenhower
15. Harding
16. Reagan
17. Hoover
Hygro
soundcloud.com/hygro/
There you go. The energy crisis ended. Inflation ended.
Volcker's role was to cause two back to back recessions to let everyone know They Are Serious and so that once the economy quickly rebounded from the Fed-induced recession, (Volcker Shocks 1 and 2) and after natural gas was deregulated and had some time for the capital investment in gas usage catch up to the new gas regime, it seemed like a new beginning. Having Reagan also certainly helped usher in the new era although I don't think either Reagan or Volcker were good for America. Ending the energy crisis was great, though.
onejayhawk
Afflicted with reason
Not the exact opposite.
Volker had the plan. Reagan not only let him run with it, he went to the public and sold the program. Do not ignore the PR aspect of a President. Carter had done the opposite, lobbying for easier money. Volker certainly deserves credit. Exactly how much credit either President deserves is debateable, but both deserve some.
Do not say Volker cause two recessions (or a two part recession). To the contrary. The recession was coming regardless. Volker's actions intentionally aggrevated the recession. Combined with normal recovery forces (eg OPEC cheating) the inflationary spiral was broken to an extent.
It makes you wonder what the long term effects of the artificially low interest rates of the last two decades will produce. Even a small rise in interest rates will cause massive ripples in the federal budget.
There is no "certainly wasn't terrible" about it. That is exactly what is being claimed.
J
Hygro
soundcloud.com/hygro/
There may or may not have been a concurrent business cycle dip with Volcker's shocks, but let's not kid ourselves, that recession was caused by interest rates hitting over 20%. Try taking out a mortgage in that environment. In fact almost every recession post war until the dot-com burst was caused by deliberate Fed policy.
Also, what are you defining as "artificially low" interest rates?
graph shows interest rates minus that year's growth.
onejayhawk
Afflicted with reason
There may or may not have been a concurrent business cycle dip with Volcker's shocks, but let's not kid ourselves, that recession was caused by interest rates hitting over 20%. Try taking out a mortgage in that environment. In fact almost every recession post war until the dot-com burst was caused by deliberate Fed policy.
Also, what are you defining as "artificially low" interest rates?
graph shows interest rates minus that year's growth.
Lets not kid ourselves, the short money supply accelerated and deepened an existing, unavoidable condition. Recessions are too big to avoid, though you can bump the timing a bit. You cannot make a reasonable case that Volker's policies caused the recession. Effected, yes. Caused, no. The Fed is not that powerful.
I love fred. Bad economies raise the curve.
No, Volker did it. The early 80s recessions were deliberately engineered. That's not to say that recessions don't happen. They do, they are a natural part of market economics. Though the depth and severity of them is very significantly altered by government actions. In both directions, depending on the policies. But even though recessions are a natural thing, that doesn't alter that Volker caused the early 80s recessions. That is the power of monetary policy. A central bank can always knock an economy down as hard and far as they want to. (Whether they can do the opposite is a more debatable point, where monetarists seem to think strongly that they can, and I to a large extent disagree).
Hygro
soundcloud.com/hygro/
If the Fed can't cause a recession then financial crises can't cause them either, seeing as all the Fed can do is completely dry up all lending. Yes, the Fed is that powerful. Loans become immensely unprofitable when interest rates spike, and meanwhile parking money in treasuries becomes awfully popular so banks have a dual incentive to lend very little. Since our economy operates on credit, this brings businesses to a halt, which brings layoffs, which brings unemployed people buying less stuff, which causes the usual chain reaction and you have a big recession all because interest rates are too high. A good hint to know if a recession was engineered by the Fed is how quick the recovery is. If the recovery is about as fast as the drop, it's usually due to the Fed.
You still haven't answered what an "artificially" low interest rate is. Are you just saying all interest rates are artificial and recent rates have been nominally low? (As a function of the economy they have been too high until it was too late, as I demonstrated above).
onejayhawk
Afflicted with reason
Financial crisis are a lot bigger than the FED. That said, they tend to be one of the dominoes rather than the origin.
Interest rates are as close to zero as practical. The traditional balance of debt and equity is effected by the cheap rates.
J
Hygro
soundcloud.com/hygro/
How are you defining the size of a financial crisis vs the size of the Fed?
How are interest rates ~0% "artificially low"? Indeed given the zero lower bound, I'd expect the more common argument that the ZLB keeps them artificially high. They are nominally low, but what about it is "artificially low"?
Tahuti
Writing Deity
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Milton Friedman was a proponent of the 0% interest rate wasn't he?
Hygro
soundcloud.com/hygro/
I don't know, but a lot of folk are across economic disciplines. As Keynes put it, interest rates are just rent and in a perfect world there's no rent.
I would tend to agree with a statement like this, but I am hesitant to support the people who say such things because then they usually start ranting about Illuminati and reptilian shape-shifters trying to set up the "New World Order".
So as long as your not one of those Illuminati conspiracy theorists, I agree with this statement.
Friedman was a proponent of 0% inflation. But we found out that that was not possible.
onejayhawk
Afflicted with reason
I am not sure what you mean by "nominally low." Interest rates are low because the Fed has driven them down. 0% is not possible, but they tried.
The Fed has authority only in a very narrow section of the financial markets. It often a highly leveraged section, but sometimes not. Also, it is the nature of levers to generate speed on recoil. For more than a decade, the Fed has used its leverage to drive interest rates down. If their grip ever slips, the recoil will do damage.
Richard Nixon would definitely not agree.
J
Hygro
soundcloud.com/hygro/
Nominal, in economics, refers to the literal number itself, regardless of its relationship to other numbers. For example, whereas a nominal interest rate might be say 4% in the mid 2000s, the real interest rate was closer to 2% due to the nominal rate relative to inflation. i.e. the real interest rate (r) = nominal interest rate (i) minus inflation (π
. In this case, rates (real and nominal) have been nominally very low in the past couple decades relative to the 20th century, but have been high relative to growth. My wording is careful.
What you're saying is that the rates are artificially low. You can drop the point if you like but the reason I take issue is that phrases like those worm their way into peoples' heads and they make decisions based on them, without ever stopping to realize they have no idea what that means or where and why they heard the expression.
Artificially low has a specific meaning in economics which is to say that relative to the market the rate is distorted. All "the interest rate" interest rates are artificial since they are set by the Fed. Indeed the natural rate of interbank lending during deficit spending is about 0%, which means that interest rates during deficit spending are always artificially high, even nominally.
What you're metaphorically describing in your post is that the Fed is forcing interest rates down using some kind of tenuous power. But you're leaving it up to voodoo for how this works. There are no levers, there's no grip, there's no recoil. So these metaphors have to be describing an actual process to have any meaning.
onejayhawk
Afflicted with reason
Voodoo is sticking pins in a mock up, hoping for a reaction. For an example, see Congress 1933-1939. I am talking about the Fed lowering the discount rate from 5.75% to 0.50% in under 2 years. The pin is a discount and overnight rate 4%+ below the treasury rate. What does the doll look like? Gold?
J
