Posted 4/11/2019 22:44 (#7434534 - in reply to #7434242) Subject: RE: Bottom Line Losses of Some Companies in 1981
The Volcker actions at the FED were a very interesting experiment in economics.
It has been my contention that the higher interest rates cause the inflation they are trying to prevent. When the FED put higher rates on in the 1979 to 1981 period to try and stop inflation this made the inflation worse and made it last longer up until the 81-82 recession that slowed the inflation and the economy, then the rates came down.
I will post a chart that shows how higher prime rates lead the inflation up until the recession of 81. In the chart all 3 components are set to monthly frequency. You can see the oil embargo that started the whole thing in 1973. Oil has a big part to play in inflation. Prime rate is what it is in the chart as we know what it was on any given date. I have the CPI calculated as percent changed form a year prior, you can decide how fair that is in relation to the theory that, at least back in that period, higher rates caused the inflation they were trying to prevent.
Here is an interview from the other day talking about the Volcker high interest era and how what most people believe about it is probably wrong. It is about how the FED isn't nearly as important as people think and congress and fiscal policy is where all the power over economic recessions and expansions is at: