Each month, New York Times chief financial correspondent Floyd Norris takes a look at a major event in business history that happened that month. Given Paul Volcker’s recent appointment as head of a new White House Economic Recovery Advisory Board, this video clip and archive material focus on the former Fed chairman’s policies during his tenure.
Volcker was sworn in on August 6 and commenced an attack on the US money supply as soon as he took control. BUYandHOLD picks up the story: “He began to set a target for the growth of money, in the hope that demand for credit would begin to dry up. The Fed funds rate was increased in the hope that banks would eventually cut back on their lending.
“Then on October 6, Volcker acted even more forcefully. Holding a rare Saturday night news conference, he unleashed his own version of the ‘Saturday Night Massacre’. Pointing to the recent economic releases, Volcker said, ‘Business data has been good and better than expected. Inflation data has been bad and perhaps worse than expected.’ The Chairman announced that the discount rate was being increased a full percentage point to a record 12%.
“On October 5, IBM had brought to market the largest corporate bond offering ever, $1 billion. Of course, the fixed income market was roiled that following Monday. The sudden rise in rates on Monday, and the commensurate decline in the value of bonds, meant that some firms faced large losses on their positions of unsold paper.”
In my opinion, tasking the 81-year Volcker to revive growth in the US is a smart move by President-elect Obama.
Click the image below to view the video clip, as well as some historical graphics and pictures, giving a fascinating perspective of the Volcker era.
Source: Floyd Norris, The New York Times
