The Thrill Packed Week Of October 15, 1979
Another thrill packed week in October history - this one from the 15th in 1979, via the CBS News program The World This Week. Wall Street took a dive, the interest rates took a hike and the housing market took a powder.
John Bohanon (CBS News): “It all started last week – the Federal Reserve Board raises the Interest rate, the rate banks are charged for borrowing from the Fed. An increase of one full point to 12 percent. Something has to be done, says the Fed, to stop inflation and curb speculation. On Monday; the first reaction. The Dow Jones Industrials went down over thirteen and a half points. Tuesday: Another shock; several banks raise their prime rate, the rates the banks charge their best corporate customers. The Prime up one full point to fourteen and a half percent; an unprecedented increase. Down goes the Dow again, another twenty-six and a half points. Bond prices plunge. And on Wednesday, history is made on Wall Street. A record trading day, almost 82 million shares changing hands. At one point, the market down nearly 25 points for the day.
The rest of the week was taken up with Fidel Castro's visit to the UN and his very vocal support for the PLO, the 1980 campaign trail, the Ted Kennedy factor and fears of a major recession washing up on our financial shores.
Just another week - same as it always is.
Frist. Can we still say that? :P
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Diabolus est Deus Inversus
That is when Paul Volker, Jimmy Carter's newly-appointed Fed Chairman, began to successfully tame the out-of-control inflation arc Carter inherited from Nixon/Ford by raising the Fed Fund Rate. And, of course, interest rates tagged along for the ride and they rose, too. It was tough, unpopular medicine, but it was the right medicine. Jimmy Carter had been fully appraised by Volker on what his strategy would be even before Carter nominated him.
And it worked. Annualized iInflation began to steadily decline, month-over-month, for the first time in half a dozen years beginning in March, 1980...almost a full year before Ronald Reagan took the oath of office.
Reagan had nothing to do with reducing inflation. Absolutely nothing. Jimmy Carter was the president who shouldered all the heavy lifting and assumed all the political risk for the strategy. By all accounts, Paul Volker never even had a serious conversation with Ronald Reagan about any of it. He simply continued doing during the Reagan years what Carter had appointed him to start doing in late 1979.
It's the reason you should laugh in the face of anyone who tells you "Reagan brought down Carter's inflation". No. Carter brought down Nixon/Ford's inflation just in time for Reagan to benefit from it. Although Reagan's other failed "Supply-Side/Trickle Down" economic and tax policies would overwhelm the benefits of the steadily declining inflation, interest rates and unemployment rates he inherited from Carter and triggered a massive Recession and skyrocketing unemployment rate beginning in late 1981 anyway.
And when they cite "high inflation AND high interest rates" as the twin evils of Jimmy Carter, the proper response is, "Well, duh. You're supposed to raise interest rates to bring down inflation. That's how Carter's Fed Chairman did it before Reagan was elected."
I think I was stoned most of that week...
And the one before and the one that followed...
Diabolus est Deus Inversus
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