89
.
Washington Post
, December 12, 1985, p. A1.
90
. On October 1, 1985, the day before the bill was introduced, the yield on the ten-year bond was 10.29 percent, and on December 11, 1985, it was 9.2 percent.
91
. The ten-year bond rate traded at 7.99 percent and 7.93 percent on the first two trading days of March 1986 (before the cut in the discount rate on March 7). On March 22, 1978, the ten-year traded at 7.98 percent, which was the last time it was below 8 percent.
92
. PIPAV.
93
. In October 1985 the federal funds rate averaged 8.01 percent and the London afternoon gold fixing averaged $325.84, compared with February 1986, when the overnight rate averaged 7.87 percent and gold averaged $338.89. William Greider,
Secrets of the Temple: How the Federal Reserve Runs the Country
(New York: Simon & Schuster, 1987), p. 696, argues that falling oil prices “from $26 a barrel to $12 in a few short weeks at the end of 1985” cheered investors because of the favorable outlook for inflation. The facts are that crude oil futures prices (the “front month”) declined from $29.75 on December 2, 1985 (the first trading day of the month), to $26.30 on December 31, 1985. Moreover, if the outlook for inflation had improved, the price of gold should have declined during this period.
94
.
New York Times
, December 24, 1985, p. D1.
95
.
New York Times
, January 20, 1986, p. D5.
96
. See “The Budget Noose Remains,”
New York Times
, February 8, 1985, p. 26: “In throwing out a key provision of the Gramm-Rudman-Hollings law, a Federal court addressed only procedure, not substance. The rest of the law remains in place and so does the first task for the President and Congress: to find a mutually acceptable way to reduce the deficit ⦠The law calls on the Comptroller General, head of the General Accounting Office, to determine whether the deficit reduction goals are met. But the Comptroller General's office is subject to Congressional authority. That's the vulnerability found by a three-judge district court in Washington yesterday, ruling in a case brought by members of Congress. Giving him such responsibility intrudes improperly into executive branch terrain, the court held.”
97
.
New York Times
, February 8, 1986, p. 9.
98.
Ibid.
99
. See
Wall Street Journal
, March 3, 1986, p. 1.
100
. Rudolph Penner and Alan Abramson,
Broken Purse Strings: Congressional Budgeting, 1974 to 1988
(Washington, DC: Urban Institute Press, 1988), p. 70.
101
. Thomas Sargent describes the battle between the monetary and fiscal authorities more generally as follows: “While the authorities are playing this game of chicken, we would observe large ⦠government deficits, low rates of monetization of government debt ⦠and maybe also high real rates of interest on government debt.” See Thomas Sargent,
Rational Expectations and Inflation
, 2nd ed. (New York: HarperCollins, 1993), p. 221.
102
.
Washington Post
, December 12, 1985, p. A1 continued.
103
.
Wall Street Journal
, January 21, 1986, p. 64.
104
. Ibid.
105
. PIPAV and
Wall Street Journal
, January 21, 1986, p. 64.
1
. The following conversation is based on the recollection of Paul Volcker.
2
. See
Washington Post
, January 9, 1985, p. A1, for the announcement of the job switch.
3
. On August 6, 1979, the day before Volcker took office, the mark closed at 1.8295 marks per dollar and the yen closed at 217.15 yen per dollar. On September 20, 1985, the last trading day before the Plaza Agreement, the mark was at 2.8475, a 56 percent increase in the value of the dollar, and the yen was at 241, an increase in the dollar of 11 percent.
4
. PIPAV.
5
. Transcript, Federal Open Market Committee Meeting, October 1, 1985, p. 25.
6
. On September 20, 1985, the Friday before the Plaza Agreement, the yen closed at 241 yen per dollar and the mark closed at 2.8475 marks per dollar. On February 3, 1986, the yen closed at 191.6 yen per dollar, a 20 percent decline in the value of the dollar, and the mark closed at 2.4 marks per dollar, a 15.7 percent drop in the value of the dollar. According to Volcker, the expected depreciation at the Plaza meeting was about 10â12 percent. See Paul Volcker and Toyoo Gyohten,
Changing Fortunes: The World's Money and the Threat to American Leadership
(New York: Times Books, 1992), p. 254.
7
. The FOMC consists of the seven-member board plus a rotating group of
five presidents of the regional Federal Reserve banks, with the exception of the president of the New York Fed, who is a permanent member of the FOMC.
8
. See
New York Times
, October 11, 1985, p. D1.
9
. The phrase “Gang of Four” as applied to the Reagan appointees to the Federal Reserve Board appears in a headline in the
Washington Post
, January 30, 1986, p. A25.
10
. See
New York Times
, October 11, 1985, p. D1.
11
. See Minutes of the Board of Governors of Federal Reserve System, January 27, 1986, p. 5: “At several previous meetings, most recently on January 21, 1986, the Board had considered but taken no action on requests by some Reserve Banks to lower the discount rate.” The last discount rate change was on May 20, 1985, a decline from 8.0 percent to 7.5.
12
. This quote and the remaining quotes in this conversation are based on the recollection of Paul Volcker and on the reports in the
New York Times
, March 24, 1986, p. A1, and the
Washington Post
, March 17, 1986, p. A11. The Minutes of the Board of Governors of Federal Reserve System, February 24, 1986, pp. 2â3, gives a general description.
13
.
Washington Post
, March 19, 1986, p. A1.
14
. PIPAV.
15
.
Washington Post
, February 20, 1986, p. A15.
16
. Ibid.
17
. The following conversation is based on the recollection of Paul Volcker.
18
. PIPAV.
19
. See Minutes of the Board of Governors of Federal Reserve System, February 24, 1986, p. 6, for a description of the afternoon meeting. The face-saving on all sides is reflected in the following quote: “In view of the improved prospects for coordinated actions, a consensus was recorded to reconsider the decision reached earlier today to reduce the discount rate.”
20
.
Washington Post
, March 8, 1986, p. A1.
21
. Ibid.
22
. Ibid.
23
.
Washington Post
, March 17, 1986, p. A11.
24
.
Washington Post
, March 22, 1986, p. A1.
25
. Ibid.
26
. See the twelfth annual survey of “Who Runs America,”
U.S. News & World Report
, May 20, 1985, p. 54.
27
. PIPAV. Also see Bob Woodward,
Maestro: Greenspan's Fed and the American Boom
(New York: Simon & Schuster, 2000), p. 19.
28.
Washington Post
, March 27, 1986, p. A1.
29
. Letter dated August 6, 1979, Personal Letters from 1979, Papers of Paul Volcker, Federal Reserve Bank of New York Archives, Box 95714.
30
. Response to Carlock, dated August 16, 1979, Personal Letters from 1979, Papers of Paul Volcker, Federal Reserve Bank of New York Archives, Box 95714.
31
. Letter dated June 19, 1983, Personal Papers of Paul Volcker.
32
.
Newsweek
, February 24, 1986, p. 46.
33
. Ibid.
34
. PIPAV.
35
.
New York Times
, March 31, 1987, p. B6.
36
. PIPAV.
37
.
Washington Post
, February 28, 1987, p. A21.
38
.
Washington Post
, March 14, 1987, p. A21.
39
. See “Bank Curb Eased in Volcker Defeat,”
New York Times
, May 1, 1987, p. D1.
40
. See Minutes of the Federal Reserve Board, “Citicorp; J.P. Morgan & Co.; Bankers Trust New York Corporation, all of New York, New YorkâApplications to underwrite and deal in certain securities,” April 29, 1987.
41
.
New York Times
, May 1, 1987, p. D1.
42
. Ibid.
43
.
Wall Street Journal
, May 4, 1987, p. 66.
44
. The following dialogue is based on the recollection of Paul Volcker and on the
Wall Street Journal
, June 3, 1987, p. 20, and the
Washington Post
, June 3, 1987, p. A1 continued. Reagan's diary entry (see the next note) confirms Volcker's recollection that he chose not to be reappointed. Bob Woodward in
Maestro
, p. 23, claims that Volcker asked Baker, “If I were [interested] would the President reappoint me?” Woodward also claims that Volcker then suggested (without quotes), let me think about it. The public record fails to confirm Woodward's version.
45
. See the entry for May 27, 1987, in Douglas Brinkley, ed.,
The Reagan Diaries
, vol. 2 (New York: HarperCollins, 2009), p. 728.
46
. Paul Laxalt, Reagan's best friend in the U.S. Senate, as quoted in the
Washington Post
, March 30, 1982, p. A1.
47
. See Woodward,
Maestro
, p. 21.
48
. Ibid., p. 19.
49
. The sale of arms to Iran in violation of a U.S. embargo was exposed in November 1986. President Reagan appointed a commission chaired by Senator John Tower to investigate. The Tower Commission called the president to
testify and later exonerated him from direct knowledge but criticized him for not properly monitoring his subordinates.
50
.
Wall Street Journal
, June 3, 1987, p. 20.
51
. See
New York Times
, June 2, 1987, p. D1, for this precise quote and the article in the
Wall Street Journal
, June 1, 1987, p. 3, entitled, “Fed's Volcker Is Likely to Be Reappointed If He Wants, White House Aide Indicates.”
52
.
New York Times
, June 3, 1987, p. D26.
53
.
Washington Post
, June 3, 1987, p. A1.
54
. Ibid. Also see Ecclesiastes 3:1 “For everything there is an appointed time.”
55
. Ibid.
56
.
Wall Street Journal
, June 3, 1987, p. 20.
57
. The closing prices on June 2, 1987, versus June 1, 1987, reflect the market's assessment of the news during the day. The value of the dollar fell from 1.834 marks to 1.804 marks, a decline of 1.6 percent, which is statistically significant compared with a daily average standard deviation of returns equal to 0.74 percent. Gold rose from $443 to $455, an increase of 2.7 percent, which is significant when compared with a daily standard deviation of returns equal to 1.25 percent. The daily standard deviations are measured from January through May of 1987.
58
. See “Markets Decline After Volcker Steps Down,”
Washington Post
, June 3, 1987, p. G1 continued.
59
. Letter dated June 4, 1987, Personal Papers of Paul Volcker.
60
. See “Hill Reaction to Greenspan Is Varied,”
Washington Post
, June 3, 1987, p. G1 continued.
61
.
Wall Street Journal
, June 3, 1987, p. 20.
62
.
Washington Post
, June 3, 1987, p. G1 continued.
63
.
Wall Street Journal
, June 3, 1987, p. 20.
64
. The increase in the ten-year bond rate from 8.45 percent to 8.72 percent is a jump of 3.2 percent and is statistically significant compared with a daily average standard deviation of yield changes (measured from January through May of 1987) of 0.97 percent.
1
. Seven black binders containing each letter and response in a separate cellophane wrapping are available in the Personal Papers of Paul Volcker.
2
. The letter is dated June 6, 1987, Personal Papers of Paul Volcker.
3.
The letter is dated June 10, 1987, Personal Papers of Paul Volcker.