Word: volckerism
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Dates: during 1970-1979
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Previous chairmen had decidedly political leanings: Arthur Burns, appointed by Nixon, was known as a Republican, and Miller had been active in Democratic affairs as a businessman. Volcker, who is a Democrat, is resolutely nonpartisan. Observes Brimmer: "He's simply not going to tilt for or against the White House because of party affiliation. Paul's much more likely to maintain some distance...
...anticipated recession deepens and election time rolls around, Volcker may find others, including Carter, carefully keeping a distance from him. Volcker seems willing to absorb the political lightning. There will be plenty of it as the economy reacts to the sweeping reforms announced by the towering and determined man who must test his resolve against the most punishing financial prospects in a decade...
...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 to subsidize mortgages and student loans." He predicts that the chairman will stick to his stern policy: "Volcker is a tough guy, although pressures on him to soften his position are likely...
...expert. "Certainly, initially, if we are to brake inflation, there will be some difficult periods to go through. The sooner, the faster we do it, the less gradual approach we adopt, the better chance we 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...
...Instead it dropped, indicating that the economy was far 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...