Chapter 51 Untrusted Walker

Carter's expression now is quite intriguing. Using a future reference, it's like "sitting up in bed startled by illness, only to find out the clown is myself."

While in New York, Carter made a killing from the Vicks company. But in the blink of an eye, Vicks, suffering heavy losses due to Carter's actions, had to resort to drastic measures, selling products at ultra-low prices to raise funds, indirectly causing problems for Carter.

"It's alright, it's alright. The Vicks company doing this might have a reason behind it. Let's talk about it later. Please continue, anything else?"

"Alright, there's one more thing you might want to pay attention to, but don't worry too much. The chairman of the Federal Reserve has recently changed, and the newly appointed Paul Volcker, I heard, was directly appointed by Carter. He used to be the president of the New York Federal Savings Bank and also worked at Chase Manhattan before. I've heard he's a bit of an extremist. Taking over the Fed now, he might tighten the money supply, but next year is an election year. I think he shouldn't go too far. After all, he has to consider his own position. I suggest that in the next six months, we tighten our lending scale to cope with this tense period. What do you think?"

"Yeah, I agree. But my view differs from yours. I don't think he'll increase the money supply under pressure from the White House."

Carter nodded, agreeing with Goodman's proposal. Although tightening loans would reduce the bank's profits, considering the increasing bad debt rate, Carter thought it was manageable. It's better than lending money out and watching it go down the drain.

It's just a pity that, according to the restrictions on savings banks in the future, he couldn't use depositors' funds for investment. Otherwise, putting these deposits into the Magellan Fund would yield sufficient returns each year, no less than lending!

"I mentioned to you before that when I returned from my trip, I would tell you about my plans. Now is the time. You should be well aware of how exaggerated inflation has been these years, right?"

"Of course, but I don't think Volcker can withstand the pressure from the White House. Perhaps he was a radical when he was the president of the bank, but from the moment he became chairman of the Federal Reserve, he became a politician. For politicians, their own positions are the most important!"

The inflation in the 1970s in the United States was extremely severe. The Consumer Price Index (CPI) was 38.8 in 1970, and by 1980, it had risen to 84.2. The CPI usually indicates the extent to which prices affect consumers' lives. The higher the number, the greater the impact of basic prices on people's lives, meaning that the rise in prices is becoming unbearable for people.

This might not be very intuitive, so let's give another example. Even in the severe inflation of 2021, the year-on-year increase was only 0.9%. Extrapolating this, a typical increase in index over ten years would be around 10%, but in the United States during this period, the increase was over 200%, more than twenty times that of normal.

During Volcker's predecessor Berns' tenure, from 1970 to 1978, the average annual inflation rate exceeded 6.5%, and during Miller's tenure, it even exceeded 10% at one point. This kind of inflation rate, if the economy can keep up and wages rise accordingly, might still be bearable. But the United States wasn't in a period of great economic development now!

That's terrifying! This data, when applied to real life, means that something sold for $10 the first year became $11 the second year, then $12.1 the third year.

With this basic information and future insights, Carter became even more convinced that Volcker would hold up. The reason was simple:

"Yes, you have a point. But it's been ten years, hasn't it? Some things just need to be done. If he doesn't do it, there will be new Volckers and Rolckers to do it."

Carter tapped the table, speaking slowly:

"It's time to act. This level of inflation for ten years is already extreme, like a tumor on the body. Removing it will be painful, but if you don't, it will eventually take your life. If the Federal Reserve continues to cater to politicians, easing monetary policy, then we'd better pack up and leave this hopeless country as soon as possible."

"While the dollar is still worth something, let's establish ourselves elsewhere. Otherwise, our money will become worthless pieces of paper like toilet paper in the end."

"Why him? Everyone knows the reason, but so what? It's been so many years, Burns didn't do it, Miller didn't do it, what makes you think Volcker can? The Carter in Washington only cares about his re-election next year, as for the future you're talking about, that's just the future. As long as his term doesn't explode, who cares what happens after he's gone?!"

Carter's reasoning was completely understood by Goodman. But perhaps it was the inherent distrust of government officials among Americans, or maybe it was just too much understanding of the American situation. Goodman simply couldn't believe that Volcker would gamble his own future for the country's future.

Contribute to the country, do what the nation needs, those are all just empty words used to deceive the fools on the street into joining the army! People like them, who dance with capital, how could they believe that Volcker, the distinguished top banker, would get all fired up and charge into battle for America?

"Well, then let's wait and see. At least, our goals are aligned now, aren't they? I also intend to shrink the size of our loans. Let's handle the loan approvals together in the future."

Carter smiled and didn't refute Goodman's words. If he didn't know the future, Carter wouldn't have believed that Volcker was really that steadfast.

Presidential election years always had a special meaning for America. In election years, from the president to the people, everyone could feel something different. For example, the people would feel that their welfare had improved, pictures of certain individuals would appear in the city center again, and the square would seem much livelier.

For officials, election years were the crucial moment to vigorously defend their factions. Otherwise, if a new president came in, could they still hold onto their positions? Volcker, the Fed chairman appointed by President Carter, would naturally be classified as Carter's or the Democratic Party's camp. If he didn't cater to Carter, relax monetary policy, and give the people some temporary benefits, wouldn't he just be handing votes to the Republican competitors?

When the Republican candidate took office, could this "Democratic Party" Fed chairman still hold onto his position? Publicly and privately, at this point, it wasn't just Goodman who didn't trust him; perhaps the entire United States didn't trust him.

Even long-term bonds, interest rates have now risen by two percentage points. Obviously, from the perspective of the issuing institutions, being appointed as the Fed chairman at such a delicate time before the election was just a scapegoat that Carter used to gain votes.

After the election year passed, when the excessive issuance of currency continued to cause inflation to rise, they could just push him out and "apologize". No matter what he said, everyone would think that the currency that should be issued would still be issued, and inflation would still rise!

If the interest rates of long-term bonds don't rise along with it, no one would buy them at all; nobody is that foolish!