ilia25
I can do math
- Jan 12, 2012
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I keep asking for a link, do you have one??
This is how Fed created the Reagan's recession (by rising rates to 20%), and how it stopped it (by lowering them to 10%):
This is why the standard monetary policy was powerless in 2008 -- Fed started with much less room to lower the rates:
In 80's all the Fed HAD to do is lowering rates from 20% to 10%. In 2008 all the Fed COULD do is lowering rates from 5% to 0%, and that was not nearly enough for the economy to recover.
Ilia, you have it all ass backwards.
In October 1979, Volker radically changed Fed policy by allowing interest rates to float. To understand why he did this, it is necessary to understand what preceded this action.
In 1971, Nixon unpegged the dollar from gold.
Since the dollar was no longer pegged to gold, how did we keep the dollar a strong currency?
Well, we didn't. Congress fucked it all up.
You see, the Fed controlled the monetary supply, sort of. But the money supply was actually controlled by targets set by Congress. And Congress set targets that were political goals rather than sound fiscal goals.
So the Fed actually controlled only the federal funds rate. And it kept the federal funds rate rock steady.
But because Congress was printing money like there was no tomorrow, inflation began skyrocketing.
So Volker decided to use what power he had and stopped keeping the federal funds rate steady. He floated interest rates. This was an historical moment in financial history.
And thus the bond market went from a boring career for losers into the hotbed of activity it is today.
Rather then lowering the federal funds rate as you claimed, Volker raised it by 400 basis points to get inflation under control. And this led to a recession and high unemployment in January 1980. Which, of course, really pissed off Congress.
The fed funds flucuated wildly for while, leading to a second recession in 1981. Which pissed off Congress even more. It is hard to get re-elected when your constituents are unemployed.
But this had to be done to save the economy in the long run.
Volker's pllan ultimately worked to get inflation under control.
What Reagan gets credit for is that he was under tremendous pressure from Congress to return to the days of when Congress got to set the money supply. Congress had a crack monkey on its back and was demanding a fix. Reagan resisted this pressure and continued Volker's policy of floating interest rates. And he was proven correct in this policy.
It is for precisely this reason that idiots who want to "End the Fed" and return monetary control back to Congress are completely wrong. We would quickly return to the stagflation madness of the 70s.
With unemployment stuck at 8 percent, Congress would begin printing money like there was no tomorrow all over again. Much more than what the Fed has already printed.
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You've sure typed a lot of letters, but I don't get what points are you arguing with. Reagan's recession was created by the Fed, and it was ended by the Fed. You can credit Reagan for giving the Fed that freedom of action, but in the end all Reagan had to do is to sit back and watch.
Obama simply did not have that option.