On October 10, 1971, in the Oval Office, Nixon said to Burns: "I don't want to just step down... If we lose, it will be the last time Washington will be governed by conservatives." This article is from Ye Zhen, an article written by Wall Street Insight, reprinted by PANews. (Synopsis: Trump choked Powell "to fire you faster than cut interest rates", Fed independence affected will hit the market? (Background supplement: US think tank sprays Trump Bauer: Fed interest rate cut is too much, "inflation is about to explode", economics has completely failed) Trump is threatening the independence of the US Federal Reserve with tweets, and the last time the US president pressured the US Federal Reserve in this way was in 1971, the eve of the era of great stagflation in the United States. In 1971, the US economy was already facing the dilemma of "stagflation", with an unemployment rate of 6.1%, inflation exceeding 5.8%, and the balance of payments deficit continued to expand. In his bid for re-election, President Nixon put unprecedented pressure on then-Federal Reserve Chairman Burns. White House records show that in 1971, Nixon's interactions with Burns increased significantly, especially in the third and fourth quarters of 1971, when the two had 17 formal meetings per quarter, far more frequently than they normally communicated. And this intervention is manifested at the policy operation level: that year, the US federal funds rate plummeted from 5% at the beginning of the year to 3.5% at the end of the year, and the growth rate of M1 money supply reached a peak of 8.4% after World War II. In the year of the collapse of the Bretton Woods system and the drastic changes in the global monetary system, Burns's compromise on politics paved the way for the subsequent "great inflation", which was not solved until Paul Volcker's sharp interest rate hike after 1979. Burns also bore the infamy of history. Today's Powell does not want to repeat Burns' fate. Burns' Compromise: Political Interests Over Price Stability In 1970, Nixon personally nominated Arthur Burns as chairman of the Federal Reserve. Burns, an economist at Columbia University and an economic adviser to Nixon's campaign, have a close personal relationship. Nixon had high hopes for Burns – not as a gatekeeper of monetary policy, but as a "collaborator" of political strategy. At the time, Nixon was under intense pressure to win re-election in the 1972 election, at a time when the U.S. economy had not fully recovered from the 1969 recession and unemployment was high. He desperately needs a wave of economic growth, even if it is a false boom created by "releasing water." As a result, he kept pressuring Burns, hoping that the US Federal Reserve would cut interest rates and issue more money to stimulate growth. Internal White House recordings recorded multiple conversations between Nixon and Burns. On October 10, 1971, in the Oval Office, Nixon told Burns, "I don't want to go out of town fast...... If we lose, it will be the last time Washington will be governed by conservatives." He hinted that if he loses re-election, Burns will face a future dominated by Democrats and the political climate will change completely. In response to Burns' attempt to delay more easing on the grounds that "the banking system is already loose", Nixon directly refuted: "The so-called liquidity problem? That's just bullshit." Soon after, in a phone call, Burns reported to Nixon, "We reduced the discount rate to 4.5%." Nixon replied, "Good, good, good...... You can lead'em. You always have. Just kick’em in the rump a little）。」 Nixon not only put pressure on policy, but also made his position clear on personnel arrangements. On December 24, 1971, he told White House Chief of Staff George Schultz: "Do you think we have almost enough influence on Arthur? I mean, how much more pressure can I put on him?" If I have to talk to him again, I'll do it. Next time I’ll just bring him in）。」 Nixon also stressed that Burns does not have the authority to decide on the Fed's Board of Governors: "He has to make it clear that this is the same as Chief Justice Burger...... I'm not going to let him name his people." These dialogues, from White House recordings, clearly illustrate the U.S. president's systematic pressure on central bank presidents. And Burns did "do so" and defended his approach with a set of theories. He argued that tighter monetary policy and the consequent rise in unemployment were ineffective in curbing inflation at the time, which was rooted in factors beyond the control of the US Federal Reserve, such as labor unions, food and energy shortages, and OPEC's control over oil prices. In 1971 and 1972, the U.S. Federal Reserve lowered interest rates and expanded the money supply, promoting a brief economic boom and helping Nixon achieve his re-election goal. But the cost of this "artificial" economic boom soon became apparent. Bypassing the "Nixon Shock" of the US Federal Reserve Although the US Federal Reserve is the monetary policy enforcement agency, Nixon's opposition was not taken into account when Nixon announced in August 1971 the decision to "suspend the exchange of dollars and gold". On August 13-15, 1971, Nixon convened a closed-door meeting at Camp David with 15 core staff, including Burns, Treasury Secretary Connery, and then-Deputy Secretary of International Monetary Affairs Volcker. During the meeting, although Burns initially opposed closing the dollar-gold exchange window, under Nixon's strong political will, the meeting directly bypassed the decision-making process of the US Federal Reserve and unilaterally decided: "Close the dollar-gold exchange window and suspend the right of foreign governments to exchange dollars for gold; Implement a 90-day wage and price freeze to curb inflation; A 10% surcharge on all tax-related imports protects U.S. products from exchange rate fluctuations." This series of moves, known as the "Nixon shock", broke the foundations of the Bretton Woods system established in 1944, and gold skyrocketed, and the global exchange rate system collapsed. At first, wage price controls suppressed inflation in the short term, and in 1972 inflation in the United States was suppressed at 3.3%. But in 1973, Nixon lifted price controls, and the consequences of a large number of dollars in circulation and an imbalance between supply and demand quickly became apparent. Coupled with the first oil crisis that broke out in the same year, prices began to skyrocket. The U.S. economy immediately fell into a rare "double-kill" situation, with inflation reaching 8.8% in 1973 and as high as 12.3% in 1974, and the unemployment rate continued to rise, forming a typical stagflation pattern. At this time, Burns tried to re-tighten monetary policy, only to find that he had long lost credibility. His reliance on political compromise and non-monetary measures paved the way for "great inflation", and it was not until Paul Volcker took office after 1979 and completely "suppressed" inflation with extreme interest rate hikes that the US Federal Reserve regained its independent prestige. Bauer never wants to be the next Burns Burns...
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Do not forget history: After the last time the Fed chairman bowed to the president, the United States fell into a decade-long stagflation.
On October 10, 1971, in the Oval Office, Nixon said to Burns: "I don't want to just step down... If we lose, it will be the last time Washington will be governed by conservatives." This article is from Ye Zhen, an article written by Wall Street Insight, reprinted by PANews. (Synopsis: Trump choked Powell "to fire you faster than cut interest rates", Fed independence affected will hit the market? (Background supplement: US think tank sprays Trump Bauer: Fed interest rate cut is too much, "inflation is about to explode", economics has completely failed) Trump is threatening the independence of the US Federal Reserve with tweets, and the last time the US president pressured the US Federal Reserve in this way was in 1971, the eve of the era of great stagflation in the United States. In 1971, the US economy was already facing the dilemma of "stagflation", with an unemployment rate of 6.1%, inflation exceeding 5.8%, and the balance of payments deficit continued to expand. In his bid for re-election, President Nixon put unprecedented pressure on then-Federal Reserve Chairman Burns. White House records show that in 1971, Nixon's interactions with Burns increased significantly, especially in the third and fourth quarters of 1971, when the two had 17 formal meetings per quarter, far more frequently than they normally communicated. And this intervention is manifested at the policy operation level: that year, the US federal funds rate plummeted from 5% at the beginning of the year to 3.5% at the end of the year, and the growth rate of M1 money supply reached a peak of 8.4% after World War II. In the year of the collapse of the Bretton Woods system and the drastic changes in the global monetary system, Burns's compromise on politics paved the way for the subsequent "great inflation", which was not solved until Paul Volcker's sharp interest rate hike after 1979. Burns also bore the infamy of history. Today's Powell does not want to repeat Burns' fate. Burns' Compromise: Political Interests Over Price Stability In 1970, Nixon personally nominated Arthur Burns as chairman of the Federal Reserve. Burns, an economist at Columbia University and an economic adviser to Nixon's campaign, have a close personal relationship. Nixon had high hopes for Burns – not as a gatekeeper of monetary policy, but as a "collaborator" of political strategy. At the time, Nixon was under intense pressure to win re-election in the 1972 election, at a time when the U.S. economy had not fully recovered from the 1969 recession and unemployment was high. He desperately needs a wave of economic growth, even if it is a false boom created by "releasing water." As a result, he kept pressuring Burns, hoping that the US Federal Reserve would cut interest rates and issue more money to stimulate growth. Internal White House recordings recorded multiple conversations between Nixon and Burns. On October 10, 1971, in the Oval Office, Nixon told Burns, "I don't want to go out of town fast...... If we lose, it will be the last time Washington will be governed by conservatives." He hinted that if he loses re-election, Burns will face a future dominated by Democrats and the political climate will change completely. In response to Burns' attempt to delay more easing on the grounds that "the banking system is already loose", Nixon directly refuted: "The so-called liquidity problem? That's just bullshit." Soon after, in a phone call, Burns reported to Nixon, "We reduced the discount rate to 4.5%." Nixon replied, "Good, good, good...... You can lead'em. You always have. Just kick’em in the rump a little）。」 Nixon not only put pressure on policy, but also made his position clear on personnel arrangements. On December 24, 1971, he told White House Chief of Staff George Schultz: "Do you think we have almost enough influence on Arthur? I mean, how much more pressure can I put on him?" If I have to talk to him again, I'll do it. Next time I’ll just bring him in）。」 Nixon also stressed that Burns does not have the authority to decide on the Fed's Board of Governors: "He has to make it clear that this is the same as Chief Justice Burger...... I'm not going to let him name his people." These dialogues, from White House recordings, clearly illustrate the U.S. president's systematic pressure on central bank presidents. And Burns did "do so" and defended his approach with a set of theories. He argued that tighter monetary policy and the consequent rise in unemployment were ineffective in curbing inflation at the time, which was rooted in factors beyond the control of the US Federal Reserve, such as labor unions, food and energy shortages, and OPEC's control over oil prices. In 1971 and 1972, the U.S. Federal Reserve lowered interest rates and expanded the money supply, promoting a brief economic boom and helping Nixon achieve his re-election goal. But the cost of this "artificial" economic boom soon became apparent. Bypassing the "Nixon Shock" of the US Federal Reserve Although the US Federal Reserve is the monetary policy enforcement agency, Nixon's opposition was not taken into account when Nixon announced in August 1971 the decision to "suspend the exchange of dollars and gold". On August 13-15, 1971, Nixon convened a closed-door meeting at Camp David with 15 core staff, including Burns, Treasury Secretary Connery, and then-Deputy Secretary of International Monetary Affairs Volcker. During the meeting, although Burns initially opposed closing the dollar-gold exchange window, under Nixon's strong political will, the meeting directly bypassed the decision-making process of the US Federal Reserve and unilaterally decided: "Close the dollar-gold exchange window and suspend the right of foreign governments to exchange dollars for gold; Implement a 90-day wage and price freeze to curb inflation; A 10% surcharge on all tax-related imports protects U.S. products from exchange rate fluctuations." This series of moves, known as the "Nixon shock", broke the foundations of the Bretton Woods system established in 1944, and gold skyrocketed, and the global exchange rate system collapsed. At first, wage price controls suppressed inflation in the short term, and in 1972 inflation in the United States was suppressed at 3.3%. But in 1973, Nixon lifted price controls, and the consequences of a large number of dollars in circulation and an imbalance between supply and demand quickly became apparent. Coupled with the first oil crisis that broke out in the same year, prices began to skyrocket. The U.S. economy immediately fell into a rare "double-kill" situation, with inflation reaching 8.8% in 1973 and as high as 12.3% in 1974, and the unemployment rate continued to rise, forming a typical stagflation pattern. At this time, Burns tried to re-tighten monetary policy, only to find that he had long lost credibility. His reliance on political compromise and non-monetary measures paved the way for "great inflation", and it was not until Paul Volcker took office after 1979 and completely "suppressed" inflation with extreme interest rate hikes that the US Federal Reserve regained its independent prestige. Bauer never wants to be the next Burns Burns...