Kennedy took office in p>1961 and put forward a series of policies on people's livelihood and civil rights. The first annual budget during his term of office led to the first financial deficit caused by non-war and non-economic recession in American history. In 1963, the fiscal deficit will reach $7 billion, while the gold reserve has dropped to the lowest point since 1939. In November 1963, Kennedy was assassinated. Vice president Johnson succeeded in taking office
Johnson inherited Kennedy's political legacy and put forward the "great society" plan. From 1965 to 1969, the total federal expenditure increased by 55%, increasing by 11% every year, while the annual expenditure increased by only 2% in the previous three years. The federal fiscal deficit is rising rapidly, and in addition, there is another expenditure that is also expanding substantially, that is, the war against Vietnam. At the peak of the Vietnam War in 1968, the US military deployed 531, troops. The chairman of the Federal Reserve is Martin.
During Martin's tenure, the federal funds rate barely outperformed the rising inflation rate. In the 196s, the prestige of the Federal Reserve was very low. Many people thought that the Federal Reserve should cooperate with the Ministry of Finance to support the president's unified decision-making. In 1968, the fiscal deficit of the Johnson administration reached a record $25.2 billion. In 1967-1968, Martin implemented an expansionary monetary policy, lowered the interest rate to below 2%, and the supply of M1 and M2 increased rapidly.
At that time, the economics field was ruled by Keynesianism: that is, the government stimulated economic growth and increased employment through expansionary fiscal and monetary policies, although this brought inflation. At that time, the most popular theory was the "Phillips Curve" invented by william phillips, a New Zealand economist. The inflation rate was negatively correlated with the unemployment rate. If we want to reduce the unemployment rate, we can expand the currency to increase inflation. By 1969, the Phillips curve failed!
U.S. GDP turned around and fell to 3.1%. Inflation has risen rapidly, while the unemployment rate has soared directly to 6%. The United States ushered in the first stagflation crisis. After World War II, the golden period of world peace brought sustained growth to Europe and America for more than 2 years. At the end of 196s, the dividend of military technology and labor force disappeared, West Germany and Japan rose, the competitiveness of American manufacturing industry declined, the proportion of export decreased rapidly, the gold reserve gradually decreased, and the status of US dollar was challenged.
the American economy has entered a cyclical recession. The appearance of stagflation marks the failure of Phillips curve. In 1967, Phillips returned to Australia after a long absence to study China's economy at the Australian National University. In 1968, Nixon was successfully elected as the 37th president. Nixon's domestic goal was to curb inflation and revive the American economy. After Nixon took office, he established diplomatic relations with China, ended the Vietnam War and eased relations with the Soviet Union.
Nixon knew nothing about economy and finance. At that time, the dollar was teetering and the Bretton Woods system was on the verge of collapse. From 1969 to 197, Nixon implemented a tight fiscal policy to some extent in order to eliminate inflation, and the Federal Reserve also raised interest rates. The inflation rate eased to 4.5%, but GDP still did not improve. In 197 and 1971, it remained at the level of 3.2%, and the unemployment rate was as high as 6%. In 1971, he gave up the austerity policy for re-election
In 1971-1972, then Federal Reserve Chairman Burns (Greenspan's teacher) implemented a loose monetary policy, and the money supply soared, with the growth rate of M1 exceeding 6% and the growth rate of M2 exceeding 12%. In the first week of May, 1971, the price of gold suddenly soared, and the dollar was madly shorted in the international foreign exchange market. People change unwanted dollars into German marks or other strong European currencies.
Deutsche Bank bought US$ 2 million in Japan, and then decided not to engage in currency operations. The central banks of Switzerland, Belgium, the Netherlands and Austria immediately followed suit and closed their foreign exchange markets. In the second week of May, $4 million of gold flowed out of the United States. Gold reserves have fallen to the lowest point since World War II. On August 12th, the exchange rate of the German mark against the US dollar rose to the highest level in 2 years. Paul Volcker, the deputy finance minister, realized that the dollar crash was imminent.
In 1965, Charles de Gaulle transported back to Paris the gold worth 4 million dollars deposited by France in New Zealand. At that time, the U.S. Treasury had less than $2 billion in gold, less than 15% of the U.S. foreign repayment obligations. At that time, the official price of gold had doubled from 35 dollars to 7 dollars. Volcker put forward an emergency plan: stop the exchange of dollars for gold. Ending the exchange of dollars for gold meant the collapse of the Bretton Woods system, but it was rejected.
On the evening of August 15th, 1971, Nixon suddenly announced to the world that the dollar was decoupled from gold, and closed the dollar exchange window. Implement wage and price control for a period of three months, and intervene in labor negotiations. The next day, NYSE shares plunged 3%, the foreign exchange market was in chaos, the Bretton Woods system collapsed, and the international financial situation was turbulent. In October 1971, Nixon made another speech to the whole country, focusing on intervening in prices and controlling inflation.
from 1972 to 1973, eggs rose by 49%, and the overall price of meat rose by 25%. In April 1973, housewives launched a week-long national boycott of meat. Nixon spent a whole year trying to control prices, and as a result, prices got out of control and even caused a serious shortage disaster. For the first time in peacetime, Americans were in short supply, and a large number of beef and food on the market disappeared. President Nixon was a supporter of Keynesianism.
On October 6th, Egypt and Syria declared war on Israel, and the fourth Middle East war broke out. In retaliation for Nixon's arms supply to Israel, Saudi Arabia announced an oil embargo on the United States on the 2th. The first oil crisis broke out and oil prices rose wildly. The price of oil rose from $3 a barrel to $12 a barrel. Nixon abused his power to carry out a "massacre" against the Ministry of Justice in the evening of the Party. On the 31st, the House of Representatives initiated the impeachment procedure against Nixon, that is, the Watergate Incident.
in may 1974, prices rose in retaliation. In August, the economy fell into a trough, Nixon stepped down and Vice President Ford took over. In 1974, the real growth rate of GDP was -.5%, prices rose by 12%, and the unemployment rate reached 9%. The S&P 5 fell nearly 43.3%, the biggest drop in all previous adjustments. The second serious stagflation crisis broke out in the United States. Americans have found that the global oil price has fallen, while the United States is mired in stagflation, and the root of stagflation problem lies in the United States itself.
Ford government implemented tax reduction laws, cut government expenses, balanced the budget and other measures, and the Federal Reserve implemented a relatively tight monetary policy. In the two years since Ford took over, GDP growth rebounded, and inflation dropped to around 4%, but the unemployment rate did not drop significantly. In 1976, Ford was supposed to be re-elected, but because of the dissatisfaction caused by the Amnesty of Nixon after Ford took office, coupled with the high unemployment rate, he finally lost to Carter.
The Carter administration abandoned the austerity policy and chose the expansionary policy to stimulate economic growth. The Fed's M1 growth rate reached 8% at the peak, and the M2 growth rate remained above 12%. After experiencing negative growth in 1975, the growth rate of American GDP was around 5% from 1976 to 1978. The unemployment rate and CPI in the United States are still higher than the GDP growth rate. When the Iran-Iraq war broke out in 1979, oil prices tripled in just one year. The second oil crisis broke out.
The inflation rate in the United States soared from 6% in 1976 to 12.7% in the fourth quarter of 1979. The unemployment rate remained above 6%, and the GDP growth rate plummeted, with the annual growth rate of only 3.17% in 1979. Carter attributed inflation to excessive consumption and greed of the people and heavy dependence on oil. Throughout the 197s, the American government warned people to reduce demand and save oil.
Carter was unstable and fired all 13 members of the entire cabinet at one go, so he appointed Volcker as the chairman of the Federal Reserve. He pushed President Nixon to decouple the dollar from gold, which led to the disintegration of the Bretton Woods system. Now, the dollar is under global siege, and the United States is caught in the quagmire of stagflation. He wants to save something. Volcker is not bound by any theory, insists on pragmatism, and is famous for his tough wrist.
Volcker actually adopted a two-pronged approach, that is, pegged to the interest rate and the total amount of money. At the beginning of 198, the inflation rate soared wildly. On January 21st, the price of gold reached an all-time high of $85 per ounce. Volcker first raised the federal benchmark interest rate to 12.5%, and further increased it to an unprecedented 21% in April. In May, the inflation rate was as high as 15%. In this year, the appreciation rate of American GDP fell to -.26%. The American economy slipped into the third stagflation crisis
Volcker's violent deleveraging killed the liquidity of the market, completely sacrificed economic growth and employment, and smashed President Carter's job. In the past few years when President Carter was in power, in addition to the overall recession of unemployment rate, inflation rate and economic growth rate, the US dollar faced a serious international credibility crisis, and even beggars in Paris openly refused to accept the US dollar. The government's fiscal deficit kept rising, reaching 74 billion dollars in 198.
Reagan was elected president in 198. Laffer served as Reagan's economic adviser, Friedman's monetarism successfully entered the Federal Reserve, Mundell and Laffer's supply school entered the White House, Keynesianism lost its political ruling seat, and American economic decision-making began to be dominated by new economic theories. The following year, the American economy experienced the worst moment since the Great Depression, with a deep recession and high unemployment and inflation rates.
Volcker has always adopted a high interest rate policy, insisting on a high degree of austerity, and the White House is like ants in your pants. On March 3, 1981, Reagan's assassination won him many sympathy votes. On August 4, Reagan's tax reduction bill was successfully passed in the Senate and the House of Representatives. However, Greenspan and Burns in Reagan's team do not fully support the tax reduction policy, and they are worried that tax reduction will increase the government deficit. The government's fiscal deficit hit a new record this year.
Volcker reached an understanding with Reagan in exchange for a slight reduction in interest rates, prompting the Reagan administration to tighten its finances and increase taxes. On August 19, 1982, the tax increase bill was passed. The economy actually collapsed in 1982, and the annual GDP growth rate dropped to the worst -1.8%. Industrial production dropped by 11.8%, which lasted for 44 months, and the worst stock, debt and credit markets were on the verge of collapse.
members of the federal reserve voted to "stop increasing the money supply" in the first quarter of 1982 and raise the federal funds rate to 14%. What Volcker could do was to stick it out. At that time, a group of farmers from Ohio drove tractors to protest in front of the Federal Reserve, demanding that Volcker step down and cancel the Federal Reserve. Everyone including Reagan gnashed their teeth at Volcker. Finally in 1983, the inflation rate dropped to 3.2%.
in October 1982, the Dow rose from 77 in August to 1,, and this crisis raged for thirteen years from 197 to 1982. The number of enterprises went bankrupt reached 25,3, the average GDP growth rate was only 2.9%, the average annual inflation rate reached 1.46%, and the unemployment rate reached 1.8% at the peak. Both set the highest record after World War II. In the winter of 1982, the American economy and even the world economy quietly entered a historic turning point.
in 1986, the inflation rate dropped to 1.9%. In 1983, the economy rebounded strongly, and the GDP growth rate was 4.5%, reaching 7.2% in 1984. In the 25 years after 1982, the annual growth rate reached 3.3%, which was equivalent to the growth level in the 25 years after World War II. A large amount of investment has shifted from commodity investment with high inflation to stocks, bonds and money funds. The big bull market that lasted for decades kicked off. It turns out that Volcker was right to endure short-term pain and suppress inflation first.
Money is an economic stabilizer; If the currency depreciates sharply, the market price will be distorted in an all-round way, the market mechanism will fail as a whole, the economy will fall into chaos, and economic recession, stagnation and large-scale unemployment will be inevitable. Only when the currency price is stable and inflation is controlled will the economy and employment increase. It's just that in the process of fighting inflation, the currency is greatly tightened, which brings the pain and pain of economic downturn and unemployment growth, which makes people suffer.
Volcker created a stable price environment for the American economy, promoted the self-recovery of the market mechanism, and brewed the information technology revolution, bioengineering, new materials and nuclear energy technology; Sweeping away the decline after the collapse of the Bretton Woods system in 1971, it created a new international order and financial market with the US dollar as the core, which prompted a large amount of international capital to flow into the United States and created a bull market in real estate, stock and finance for decades.
in 1983, the chairman of the Federal Reserve changed, and Volcker was re-elected. After that, Reagan appointed four directors, Martin and Segal, who controlled the majority of votes and tried to implement loose monetary policy. On June 1, 1987, Volcker submitted his resignation letter. Greenspan became chairman of the Federal Reserve. In 199, Greenspan abandoned the Friedman-era monetary quantity target and turned to interest rate adjustment. Since then, the money supply has been completely out of control.
In 28, when the financial crisis broke out, the Federal Reserve led by Bernanke implemented the quantitative easing policy. Since then, the stagflation crisis has added more elements: debt crisis, asset bubble, exchange rate crisis and property market crisis ... On February 2, 21, the 83-year-old Volcker said at the top of his lungs: I want to tell you clearly here that if banking institutions still rely on taxpayers' money to provide protection and continue to speculate at will, the crisis will still happen ...