Ray Dalio & Paul Volcker on How Volcker Broke the Back of Inflation in the 1980's

so 14.8 inflation is where we hit in march of 1980 and as a result of that you tighten monetary policy i remember it very well you set an m1 target of 5.5 and as a result of that uh interest rates went up to 20 percent more than you ever expected and when you when you tighten monetary policy like that it drove the unemployment rate up to 10 percent and it caused the worst downturn in that period of time since the great depression and you held tight in that there were protests there was anger and you held tight in that and you followed it through and as a result of that you broke the back of inflation and in 1983 that inflation rate went down to three percent inflation at that time and we began a decade of prosperity of strong growth with low inflation they may not remember the atmosphere as was experienced the inflation rate had gone up for more than a decade there were kind of feeble efforts to deal with it during the ford administration they handed out buttons whip inflation now but it had no had more buttons than policy and there was always this conflict which always exists don't tighten monetary policy too far you'll get some unemployment so we want to decade that way and we got more inflation and more unemployment and when i took over the federal reserve at the end of carter's administration president carter was totally frustrated because he seemed to be unable to take any initiative anyway because all this inflation was backfiring running he couldn't do anything in the budget he couldn't do anything on energy all these things he would have liked to have seemed to be stalled by this fear of inflation it was very real at that time and so he asked me to become chairman of the federal reserve well it was obvious that existing policies weren't working and actually i was in the federal reserve before that voting against some of those policies but i decided we had to change an approach and we've got to stop worrying about increasing unemployment at any time we've got to deal with this inflation or it's going to get worse and worse because it was accelerating when they got close to 15 annual rate and if we pussy-footed much longer we're going to be 20 and people were really fearful about the stability of the country so we did tighten it took a long while actually for the unemployment rate to go up it was very stubborn and the inflation rate was very stubborn and we made one or two false moves we had to take back it looked a little longer than we thought but i saw no other way to approach this other than kind of a bulldog biting at it straight out and i got plenty worried in 82 when we did begin getting unemployment the damn inflation rate wasn't coming down and the money supply wasn't coming down the way we wanted but i felt we were stuck we we couldn't back off all the effort we were making would be for naught fortunately by the summer of 82 things the money spliking down inflation rate became coming down we had a recession but by the end of the year it looked like the recession could be over or at least stopped getting worse and it ended pretty quickly but it took that last year of sticking with it that i think was necessary to do the job

Channel: Principles by Ray Dalio

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Keywords: 'ray, dalio', raydalio, principles, success, 'decision, making', 'principlesforsucess', 'business, books', 'graduates', 'how, to', 'advice', 'life, advice', 'tony, robbins', the, economic, machine, works', economics, economy, education, business

Id: k50nRM6qUxQ

Length: 4min 3sec (243 seconds)

Published: Wed Aug 17 2022