Former Fed Chair and Tamer of ‘the Inflationary Dragon,’ Paul Volcker, Passes Away

Volcker’s career shaping American fiscal policy spanned more than six decades. However, he was best known for his role at the center of the Federal Reserve’s efforts to slash the rate of inflation in the late 1970s and ’80s.

Sad news. The last Fed chair who at least understood people should earn interest on savings.https://t.co/N0BtufsGNQ

— Jeff Deist (@jeffdeist) December 9, 2019

Volcker Against Inflation

Volcker was appointed to Federal Reserve Chair in 1979 by President Jimmy Carter. Inflation had been growing dramatically over the course of the ’70s. As he entered his role at the central bank, it stood at 13 percent. Although the Federal Reserve had long spoken about taking action, it wouldn’t stand much against inflation until Volcker took the helm. Many economists still held that a more gentle reduction of inflation whilst avoiding recession was possible. However, Volcker believed that the short-term pain of a recession was necessary and would be ultimately beneficial to the US economy. He would later describe his policies as efforts to “slay the inflationary dragon.” He dramatically increased interest rates to 20 percent in 1980. The cost of borrowing increased so much that a series of economic recessions did indeed hit in early 1980 and the summer of 1981. Volcker’s policies were unpopular with those hit hardest by the economic downturn. However, according to Time, Jimmy Carter stated today that they “were the right thing to do” despite being a major factor in his own election defeat. Volcker’s war on inflation ultimately prevailed. His critics became admirers as rates dropped from double digits to less than four percent in 1983. His victory led to a period of consistent economic growth that ended with the Great Recession of 2008. As well as being a proponent of sounder money, Volcker also had a hatred of the banks. As an economic adviser to President Obama following the 2007 to 2009 downturn, he fought for a break-up of America’s largest banks and for regulations prohibiting institutions from many of the riskier activities that contributed to the crash.

Bitcoin vs. Banks

Given his hatred of inflation and disdain for banks, Volcker might seem like the kind of individual that would take naturally to Bitcoin. However, in a 2013 interview in QZ, he admitted to not having encountered the cryptocurrency before. He reportedly said:

“Bitcoin? What’s that?”

He added that he was probably too old to know anything about it. That seems a great shame given Volcker’s sensibilities. It would have surely been fascinating to hear his informed opinions on the digital currency. On the one hand, he was an advocate of lower inflation and savings yielding reward for the saver, whilst he also stood against banking monopolies and the power they possess. On the other, as a public servant and a man of policy, Bitcoin’s anarchic nature and resistance to regulation may have turned him off. Ironically, during a conference in December 2009, Volcker lambasted the banking industry, saying there had been no real financial innovation since the ATM. As per The New York Times, he said:

“Wake up, gentlemen… I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy.”

Of course, even if Volcker had been younger, and by his own volition able to understand Bitcoin, he could not have known that the cause of the greatest shakeup of the banking industry was approaching its first birthday as he spoke. As well as his opinions on cryptocurrency industry itself, it would have been interesting to hear Volcker’s take on issues like the central bank-issued digital currencies that are now in the works all over the world – a direct change prompted by Bitcoin and other digital assets, as previously reported by BeInCrypto.

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