Destination: March 24th, 1980.
That was the date of this Time Magazine article titled 'Jimmy Carter vs. Inflation'. Many faithful readers do not recall those days so if the topic interests you, click on the link and you can read the entire 10 page article.
Here is the 'Coles Notes' version...
As Jimmy Carter stepped before the television cameras in the East Room of the White House last Friday, his task was not just to proclaim another new anti-inflation program but to calm a national alarm that had begun to border on panic. Inflation and interest rates, both topping 18%, are so far beyond anything that Americans have experienced in peacetime—and so far beyond anything that U.S. financial markets are set up to handle—as to inspire a contagion of fear.
For three weeks the White House struggled to develop a plan that would restore the public's confidence that the Government could bring the economy under control... But the dramatized search for an anti-inflation program proved slow and frustrating. So on Friday afternoon, Jimmy Carter strode into the East Room, having carefully waited until half an hour after the major financial markets had closed in the East, to (speak to the nation).
Speaking earnestly and somberly, Carter opened by stating that "persistent high inflation threatens the economic security of our country," and that "this dangerous situation calls for urgent measures."
The troubles had been building up for more than a decade, said Carter, and they could be traced largely to "our failure in Government, as individuals and as a society to live within our means." Glossing over his own record of rapidly rising spending and huge deficits, both of which contradicted his firm campaign pledges of 1976, he proclaimed his born-again fiscal faith: "The Federal Government must stop spending money we do not have and borrowing to make up the difference."
He acknowledged that his program would be "difficult politically" and, by implication, "onerous and burdensome" to some needy people, though less so than continued inflation would be... But his new plan would succeed, though three previous ones failed, he asserted, because "the nation is aroused now as it has never been before, at least in my lifetime, about the horrors of existing inflation and the threat of future inflation."
In follow-up press conferences Saturday morning, Federal Reserve Board Chairman Paul Volcker proclaimed that "the greatest risk beyond doubt" facing the economy is accelerating inflation. "There is no way we can deal with the problems... other than by placing restraint on people who individually would like more credit."
As this barrage of resolute rhetoric might indicate, inflation is not only a frightening economic problem but is rapidly becoming Carter's most dangerous political liability as well. Front Runner Ronald Reagan has been hammering increasingly harder on economic issues and said in Illinois Friday night: "It's Government that causes inflation, and Government can make it go away by cutting out deficits and stopping the printing of money."
Credit controls. They will be imposed. Said Carter: "Inflation is fed by credit-financed spending. Consumers have gone into debt too heavily. Businesses and other borrowers are tempted to use credit to finance speculative ventures."
So what happened after this?
Massive spending cuts were instituted and many government benefits were slashed. More importantly numerous steps were taken by the Federal Reserve to choke off the lending of money by banks. Raising interest rates was only part of it. A significant campaign was launched to choke off credit lending itself.
This was March, 1980.
The interest rate was 18%.
One year later, the problems still existed and the Fed interest rate was jacked up to 21.5%. You couldn't get a mortgage for less than 22%.
The lesson learned from people like then-Fed Chairman Volcker (who is now Chairman of U.S. President Barack Obama’s Economic Recovery Advisory Board)?
Next time act faster to combat inflation by raising interest rates to similar levels and don't give the economy, lenders and borrowers time to adjust.
Ominous, don't you think?
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