2. Paul Adolph Volcker (born September 5, 1927)
is an American economist.
He was the Chairman of the Federal Reserve
under United States Presidents Jimmy Carter
and Ronald Reagan (from August 1979 to
August 1987).
After 1987, he went back to his high-paid Wall
Street job.
Since February 2009, he has been Chairman of
the Economic Recovery Advisory Board under
President Barack Obama.
3. The Federal Reserve pushed short-term
interest rates UP:
- average 11.2% in 1979.
- was raised by Volcker to a peak of 20% in
June 1981.
- the prime rate rose to 21.5% in 1981 as
well.
Volcker kept American interest rates at
these extremely high levels in almost THREE
years, until late 1982.
4. Reduced manufacturing output
Median family income by 10%
Raised unemployment to nearly 11%
BUT
Got inflation below 4%, and it stayed roughly
this low or lower for the next 20 years.
5.
6. Highinterest rates quickly spread to the rest
of the advanced capitalist countries.
Soaring
interest rates meant higher interest
payments on foreign debts: from 10-20% in
two years.
Twoshocks that impacted the American policy
on the Third World:
Oil price increased --> raised import costs on LDCs.
Recession in the West reduced demand for
developing country exports.
7.
8. Many African countries, having borrowed
heavily in the 70s as: Nigeria's debt in a short
time went from $9 billion to $29 billion.
In the last half of 1981, Latin America
borrowed a billion dollars a week, mostly to
pay off existing debt. In 1982, Mexico
announced that it had run out of money.
Brazil's debt exploded, doubling from $50
billion to $100 billion in six years.
By 1983, thirty-four developing and socialist
countries were formally renegotiating their
debts, and a dozen more were in serious
trouble.
9. This
“lost decade” witnessed two surprising
developments:
A wave of Democratization (from South Korea to
Thailand, from the Philippines to Zambia).
The heavily indebted countries jettisoned import-
substituting industrialization.
Between 1979 and 1985 the advanced industrial
countries turned from the conflict and
confusion of the 1970s to economic integration.
Starting around 1985, developing countries
moved to export, open markets, privatize and
deregulate.
