Word: volckerism
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Dates: during 1980-1989
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...chairman declared all-out war against inflation within weeks of his appointment by President Carter. Just two months after Volcker took office, the Federal Reserve announced that it would seek to halt price increases at their source by curbing the growth of the money supply. Previously the Federal Reserve had eased tight-money policies when interest rates climbed too high, but Volcker vowed to stay firm until inflation had been wrung out of the economy. One result: the prime rate reached an unheard-of 21½% in December...
...Although Volcker has seesawed at times, he has generally kept on course so well that many critics blame his tight-money policies for the sharpest U.S. business slump since the Great Depression. "By mid-1981 inflation was under control," says Michael Evans, a Washington-based economic consultant. "But Volcker overstayed his welcome. He didn't ease up until mid-1982, and that turned a moderate recession into the worst one ever...
...Federal Reserve finally relented last summer and allowed money to expand faster. The prime, which stood at 16½% at the time, tumbled to 10½% earlier this year and has remained there while the economic recovery has picked up steam. Some experts argue that Volcker had no choice but to let up; others give him high marks for good sense and good timing. Says Irwin Kellner, chief economist for Manufacturers Hanover Trust: "He squeezed the daylights out of the economy until it really hurt, but he was wise enough to know when...
...Volcker also played a key role in containing the international debt crisis last August. "Aside from saving international banking, I can't think of anything he's done," quips Economist Donald Ratajczak of Georgia State University. By easing up on the U.S. money supply, Volcker ensured that cash would be available for loans to troubled borrowers like Mexico, which was near default. Moreover, Volcker was the leader in arranging a $5 billion rescue package that kept Mexico financially afloat...
Like any other person in public life, Volcker has his detractors. He has been faulted for going along with Carter's disastrous fling with credit controls in early 1980 and for sometimes permitting the money supply to swing wildly. Asserts Nobel Laureate Milton Friedman, who maintains that steady and predictable money growth is the key to economic health: "There has been more volatility in the money supply in the past three years than in any previous three-year period...