Rebel Capitalist News Paul Volcker DID NOT Break The Back Of Inflation (Here's Who Did)
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May 16, 2025 Explore the myth that a single figure, Paul Volcker, defeated inflation. Delve into how market dynamics, rather than just monetary policy, played a crucial role. Discover the complexities of M1 money supply growth and bank reserve management during the late 70s and early 80s. Unpack how Volcker’s strategies inadvertently let market forces drive interest rates. Challenge conventional wisdom by examining the limitations of Federal Reserve control over inflation, revealing that real solutions lie within free market mechanisms.
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Fed's Pre-Volcker Policy Shift
- The Fed's approach before Paul Volcker was laissez-faire, targeting interest rate ranges rather than specific rates.
- Volcker changed policy to target M1 money supply growth, influenced by Milton Friedman's ideas on inflation control.
Volcker's Failed M1 Target
- Paul Volcker tried to slow M1 money supply but failed as M1 grew faster after his policy began.
- Despite failure, he gained credit for tackling inflation by raising interest rates and causing a recession.
Volcker Let Market Set Rates
- Volcker allowed interest rates to float freely instead of targeting ranges, enabling the market to set rates based on economic realities.
- This market-driven spike in rates slowed credit creation and contributed to curbing inflation indirectly.