Dad2three
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- #361
And normally when there is inflation the Fed tightens the money supply, but Nixon insisted on the Fed easing the money supply to guarantee his reelection. And in typical "Tricky Dicky" fashion he manipulated his Fed appointee Burns into easing the money supply even though he was against it. It was Nixon who made the economy worse and sent inflation out of control, not Carter.But the mess St Ronnie inherited was created by Nixon and was the same mess Carter inherited. Carter did not make it worse before he passed it to Reagan. Reagan made it the worst recession since the Great Depression completely on his own.Yeah, so? That doesn't make the economy in January, 1981 worse than the economy in January, 2009.
And by the way, the sky-high unemployment rate in January, 1981 was 7.5%. It was 7.8% (and climbing) in January, 2009.
And again, Obama inherited a recession, Reagan did not. There is no way in hell any lucid individual can argue that Reagan inherited an economy worse than what Obama inherited.
I'm not arguing that Reagan's economy was worse.
What I'm saying is that Reagan inherited a difficult mess. Your post implied that he did not because "it wasn't a recession." Simply because it wasn't technically in recession doesn't mean the economy wasn't terrible. It was.
The inflation of the 1970s started in the 1960s under LBJ with war spending and the Great Society, as well as weak policy responses by the Federal Reserve.
Carter inherited a mess but his policy responses were weak, and the economy was in worse shape when he left office than when he took office. But I do give him credit for appointing Paul Volcker, the greatest central banker of the Fed, ever. Volcker gets a lot of credit for the economic growth of the 1980s.
More Politics At The Fed National Review Online
The classic case of the Fed subordinating good policy to politics was in 1972. Richard Nixon was acutely aware that Fed tightening in late 1959 brought on a recession that began in April 1960. As the nominee of the incumbent party, Nixon took the blame for slow growth. In his book Six Crises, he complained bitterly that the Fed had, in effect, thrown the election to John F. Kennedy, whose most potent campaign pledge was that he would get the economy moving again.
When Nixon became president in 1968, he vowed that he would not let the Fed do it to him again. At his earliest opportunity, he appointed a trusted aide, Arthur Burns, to the chairmanship of the Federal Reserve. His job was to make sure that money and credit stayed easy through the 1972 election.
However, Nixon did not want to take any chances. He ordered White House staffers to keep an eye on Burns and push him to err on the side of monetary ease. According to William Safire, a White House aide at the time (in his book Before the Fall), when Burns resisted pressure to guarantee full employment in time for the election, negative press stories about Burns were planted in newspapers. A plan to dilute the Federal Reserve Board’s power was also floated. In his book Secrets of the Temple, William Greider says the tactics were crude, but successful.
The problem was inflation. It jumped to 6.2 percent in 1969 after having been in the 1 to 2 percent range for many years. In essence, the inflation rate had tripled in a very short period of time. The recession, which began in December 1969 and ended in November 1970, brought it down only very little — to 5.6 percent in 1970.
Under normal circumstances, the Fed would have tightened monetary policy to bring down inflation. But Nixon wanted to keep monetary policy loose in order to make sure the economy was robust going into the election. This led to the imposition of wage and price controls in August 1971. While everyone knew they would not work for long, the controls reduced inflation enough to keep monetary policy expansive through November 1972, which was all that mattered.
In his book Nixon’s Economy, historian Allen Matusow wrote, “Burns had offered Nixon an implicit bargain. In 1971 Nixon controlled prices, and in 1972 Burns supplied money by the bushel. The policy helped reelect the president but also assured the next cycle of boom and bust.”
That's all true.
However, it started under LBJ, and he did the same thing. At his retreat in Texas, LBJ reportedly confronted the Chairman of the Fed (I forget his name ATM), and demanded he cut rates, saying he needed it because he had kids dying in Vietnam and didn't want a recession. The story has it that LBJ threw the Fed Chair against then pinned him to the wall while he demanded it, though I don't know if that was ever confirmed. Fears of government spending also caused the stock market into a bear market in 1966 as investors were worried that government spending would crowd out private investment.
Inflation doesn't happen over night. It takes a while to build. And it began to build in the 60s under LBJ.
The U.S. economy, which had grown by 5% in 1976, continued to grow at a similar pace during 1977 and 1978. Unemployment declined from 7.5% in January 1977 to 5.6% by May 1979, with over 9 million net new jobs created during that interim, and real median household income grew by 5% from 1976 to 1978. The recovery in business investment in evidence during 1976 strengthened as well. Fixed private investment (machinery and construction) grew by 30% from 1976 to 1979, home sales and construction grew another one third by 1978, and industrial production, motor vehicle output and sales did so by nearly 15%; with the exception of new housing starts, which remained slightly below their 1972 peak, each of these benchmarks reached record levels in 1978 or 1979.
The 1979 energy crisis ended this period of growth, however, and as both inflation and interest rates rose, economic growth, job creation, and consumer confidence declined sharply
The relatively loose monetary policy adopted by Federal Reserve Board Chairman G. William Miller, had already contributed to somewhat higher inflation, rising from 5.8% in 1976 to 7.7% in 1978.
The sudden doubling of crude oil prices by OPEC, the world's leading oil exporting cartel, forced inflation to double-digit levels, averaging 11.3% in 1979 and 13.5% in 1980
Following an August 1979 cabinet shakeup in which Carter asked for the resignations of several cabinet members (see "Malaise speech" above), Carter appointed G. William Miller as Secretary of the Treasury, naming Paul Volcker as Chairman of the Federal Reserve Board. Volcker pursued a tight monetary policy to bring down inflation, which he considered his mandate. Volcker (and Carter) succeeded, but only by first going through an unpleasant phase during which the economy slowed and unemployment rose. Inflation did not return to low single-digit levels until 1982, during a second, more severe recession; President Reagan re-appointed Volcker to the post in 1983.
Presidency of Jimmy Carter - Wikipedia the free encyclopedia