Americans today need to realize that efforts to tame runaway inflation, while arguably necessary, have real consequences that can hurt. A lot. There was a time not too long ago when:
A small army of farmers, protesting foreclosures due to high interest rates, drove to Washington, DC, in tractors to protest at the Federal Reserve. Car dealers sent the Fed coffins full of car keys of unsold vehicles to represent the death of sales, because people could no longer afford to borrow money for cars. Builders mailed pieces of 2x4 wood to the chairman of the Federal Reserve to remind him that his effort to tamp down on inflation was smothering the construction industry.
The rich but largely forgotten history of people protesting high interest rates at the Federal Reserve seems nuts today, when Americans are so used to such easy access to borrowed cash.
We're talking here about the late '70s and early '80s, when high inflation got so baked into the American psyche that killing it took a shock to the system -- leading to everyday interest rates on par with what credit cards charge today. The medicine to cure inflation kicked off a double-dip recession -- where a recession was followed by a brief recovery and then another recession -- and put millions of Americans out of work. The architect of that shock, former Federal Reserve Chairman Paul Volcker, is today hailed for doing the politically hard thing and creating the environment for decades of subsequent economic growth.
But he weathered criticism as the inflation died down. The President who put Volcker in charge of the Fed, Jimmy Carter, lost his job among a crisis of confidence and malaise from voters. Ronald Reagan would renominate Volcker to a second four-year term before the two fell out. The Volcker shock. People this week are recalling the "Volcker shock," which altered the course of the US economy back then, as today's Federal Reserve imposes its second massive rate hike in a row.
