Back to the Volcker Era — If you’re a regular person not addicted to the mania of the stock market, you might ask why regular people need to feel more pain to lessen the pain from inflation.
It should be a real discussion since, for lots of people, it’s more than just stomaching a plunging 401(k)—recessions can tip tons of people into poverty that are already teetering.
It might not come as much concession, but back in Volcker’s days, the pain was much worse.
He managed to bring inflation down 7% in just 4 years, but at the cost of not one, but two recessions. And that’s not all—he also oversaw a double-digit unemployment rate and an unhinged stock market.
If Ben Graham’s Mr. Market is manic and irrational, then it’s the Fed’s job to play psychologist, both to the market and to the public.
At the depths of Volcker’s inflation fight in the early ‘80s, domestic banks were failing, emerging economies were in hyperinflation spirals, and everything just seemed terrible.
Then, he lifted his foot off the economy’s neck and cut rates in 1982, kicking off a protracted bull market paired with moderate inflation.
You can call it lucky, but his timing was on point.
Things could get bad here soon. The stock market is a forward-looking mechanism, and the bloodbath that’s been the past 12 months will likely start to ripple through the economy.
But to find light at the end of the tunnel, look to history.
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