CARTER'S ROLE IN THE PRESENT FINANCIAL CRISIS

From Monetary-Policy Disasters of the Twentieth Century (Hat-tip to The Merry Widow):

In 1979 Jimmy Carter appointed Paul Volcker to head the Federal Reserve. Volcker did what he said he was going to do. He drastically increased short-term interest rates to control inflation. In 1980 short-term interest rates were much higher than long-term interest rates. Since S&Ls made their money by borrowing short and lending long this contributed further to their destruction. By 1982 the “inflation rate” had dropped to around 4.25 percent, but many S&Ls were bankrupt, with total losses of over $100 billion. In a desperate effort to fix the problem federal regulators allowed the S&Ls to engage in questionable accounting practices and more risky (and hopefully) more profitable investments. It did not work, and by the end of the 1980s S&L losses had risen to over $150 billion. Since the liabilities (depositors’ money) were federally insured, the taxpayers had to pick up much of the tab. Finally, in the late 1980s and early 1990s the insolvent S&Ls were shut down. With the price index back to normal, stability gradually returned to the financial markets. In 1982 one of the greatest bull markets in U.S. history began and continued until 2000. While inflation measured by the consumer price index has been relatively mild in the United States since the early 1980s, the money supply has continued to expand at a rapid rate. It is likely that this expansion contributed to the stock-market bubble of the late 1990s and the housing boom of the early 2000s.

Not everyone benefited from the restabilization of the financial markets. In societies where the currency is unstable people naturally turn to other stores of wealth. Gold and real estate are common investments, and the United States during the 1970s was no exception. While the stock market floundered during the 1970s, the real-estate market boomed. The increase in real-estate values included not only houses but also farmland. When the price of farmland increased, farmers in the Midwest were able to take out larger bank loans and drastically expand their operations. But when real-estate prices declined, the leverage ratios on farms drastically increased. During the 1980s many farm bankruptcies followed.

The Great Depression of the 1930s, the S&L fiasco of the 1980s and 1990s, and the farming crisis of the 1980s are all testaments to the extremely destructive effects that an irresponsible monetary policy can have on a society....

Instead of blaming the Bush administration, voters should take a look at the monetary policies of Democratic Party administrations.