Word: interest
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Dates: during 1970-1979
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...chances of such a crunch developing would be somewhat higher if the Federal Reserve continued its now discarded practice of trying to manage the money supply by juggling interest rates Reason: in a slowdown, demand for money necessarily eases off at least somewhat and interest rates subside. But to keep those rates stable, the Fed would wind up slowing and slowing the growth of money until suddenly it would be creating nowhere near enough new money...
...delighted," says Sprinkel, executive vice president of Chicago's Harris Bank. "The Fed's actions greatly increase the odds of getting inflation under control in the longer run." Sprinkel has long argued that the old policy of trying to control the money supply by fine-tuning key interest rates often forced the board to pump more funds into the economy than it wanted to, thus aggravating inflation. "Now that they are focusing on central control of [banking] reserves," he says, "and assuming they follow through, I think it assures that we are going to have more stable money...
...cost of Eurodollars, which have been one of the major sources of funds flowing into the United States," pumping up credit availability and increasing inflation. "But the key and by far the most important change is to switch to a policy of constraining money supply as distinct from manipulating interest rates." Greenspan grants that "for an interim period, interest rates could be highly unstable; the prime rate could easily go up to 16%." But he would have gone further than Fed Chairman Volcker: "I would also have announced some major curtailments of federal subsidy programs for credit, such as programs...
...have to succeed, to turn the corner. I am very encouraged that part of Volcker's approach is an attempt to deal also with the problems posed by the Eurocurrency market. He emphasized more than before the rate of money supply growth on this market, rather than interest rates. That is the right emphasis...
...more resistant to a downturn that might check price boosts than had been supposed. Consequently, though Okun is usually vehemently opposed to a policy of relying primarily on money-supply policy to combat inflation, he proclaims himself "not horrified" by Volcker's actions. Okun fears that "interest rates could become so unstable as to be a major source of disturbance in the markets," but hopes that businessmen will now stop an inventory buildup that he judges to be troublesome...