Word: volckerism
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Dates: during 1980-1989
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...Volcker is aware of the dangers. In response to a brief but very strong recession in the spring of 1980, the Federal Reserve panicked and expanded the money supply far too fast. G.N.P. growth surged to a 7.9% rate in the first quarter of 1981, but inflation roared above 10%, and Volcker was forced to slow money growth, boost interest rates and send the economy back into recession. Now that the money supply is rising rapidly again, some economists fear the Federal Reserve is making the same mistake it did in 1980. Says Lacy Hunt, chief economist with the Carroll...
Administration officials last week were publicly and pointedly urging Volcker to rein in the money supply, even if that causes a modest uptick in interest rates. Treasury Secretary Donald Regan, who had reservations about Volcker's reappointment, called for "slow-repeat slow-and steady" money growth...
Though the Federal Reserve's decision making is shrouded in secrecy, some of Volcker's colleagues on the seven-member Board of Governors have privately admitted that monetary policy must be tightened a bit. One member told TIME: "There are unmistakable signs of overheating now. The animal spirits are starting to rise. If something isn't done soon, all our progress of the last three years would be at risk." The Fed governor said the Reserve Board might gently nudge up short-term interest rates, now at about 9%, to the 10% range. Many private experts, including...
...Volcker must be careful, though, because his actions will ripple through the world economy. Developing countries such as Mexico and Brazil are still staggering under their enormous foreign debt load. If U.S. interest rates rise enough to stall global economic growth, debtor nations could conceivably go into default and trigger a banking crisis. Says William Mason, who heads an investment advisory service in Los Angeles: "An aborted recovery would be not only a national disaster, but an international disaster as well. Volcker understands that...
Most economists agree that Volcker will be unable to keep inflation and interest rates down unless the Government curbs its deficits, which Budget Director David Stockman has warned may top $200 billion annually "as far as the eye can see." Figures released last week showed that in May the Government spent $29.3 billion more than it took in, the biggest one-month deficit in U.S. history. As the economy expands in 1984 and 1985, the Goverment's borrowing needs could clash with loan demands by private businesses. Such a conflict would give Volcker only two choices, both unpalatable...