At 2 p.m. on Monday, February 1, 1982, Federal Reserve Chairman Paul Volcker sat in his office, staring thoughtfully at the $50 box of Patrica cigars on the table.

In half an hour, the first meeting of the Federal Open Market Committee will begin. As chairman of the Federal Reserve, Volcker must clear his head and persuade committee members to raise interest rates at the meeting. Volcker took out the cheap cigar from his pocket and smoked it.

The 15% increase in the money supply since December 1981 has surprised the fed committee and troubled Volcker. In the more than two years since he took office, Volcker not only failed to keep inflation down, but also led to a deep recession. At this time, Volcker and the Federal Reserve, the situation is in jeopardy.

In the conference room on the second floor, the committee members were all present, sitting at a huge oval desk made of mahogany and black granite, and Volcker was the last to enter.

Different from the usual meetings, the committee members did not argue much, spoke very little, and even remained silent for a long time in the middle of the meeting. Everyone is waiting for Volcker's attitude. This silence really makes people feel depressed and frightened.

Finally, Gerald Corrigan, president of the Federal Reserve Bank of Minneapolis, broke the silence and declared:

Both Congress and the White House seem to signal the need to adjust monetary policy. But I think the risk is that the Fed's credibility will take a bigger hit. This will give the impression that the Fed is groveling under pressure again-everyone will say: 'they have always been subservient in the past and will continue to do so in the future'. "

Volcker then said: "We can't improve our reputation in order to improve our reputation."... If anyone can convince me to give up my present decision and tell me that it is right to make a change, I will take the advice. "

In the end, the committee voted to "stop increasing the money supply" in the first quarter of 1982 and raise the federal funds rate to 14%.

As soon as the long meeting was over, the security guards came to inform the committee members not to leave the conference hall for the time being, because the door of the building was blocked by tractors. It turned out that a group of farmers from Ohio drove a tractor to the Federal Reserve to protest, demanding that Volcker step down and abolish the Federal Reserve.

In fact, Volcker sees such remarks in the newspapers almost every day. After all, the United States is experiencing its worst time since the Great Depression, when the economy fell deep for six months, the unemployment rate soared to 8.6%, a large number of factories closed and a large number of workers and farmers lost their jobs. Volcker, as chairman of the Federal Reserve, is duty-bound to lead to this situation.

In addition to farmers, Reagan, congressmen, economists, Wall Street bigwigs, journalists and workers all gnashed their teeth at Volcker. Congressman Henry Gonzalez threatened to impeach Volcker: "break the line of conscience and legalize usury." "

Reagan was also unhappy with Volcker's continued rise in interest rates, which would largely affect his re-election. Once, a reporter asked Reagan, "do you agree with someone in Congress that Mr. Volcker should resign?" "

Reagan replied, "I have nothing to say." "

The Reagan Economic Policy Coordination Committee had also drafted a report recommending the abolition of the Federal Reserve. Members of the report include famous economists Schultz, Friedman, Congressman Kemp, Citibank Chairman Wriston and later Federal Reserve Chairman Alan Greenspan. Friedman has repeatedly stated publicly that he will replace the Fed with a computer.

Democratic Senator Lawton Chiles said bluntly in front of Walker in Congress: "We're going to have to cancel the Fed board as a whole." Beheading the Fed system is easy compared with deficit reduction. "

Volcker argued fiercely: "beheading the Fed is like shooting a messenger. It doesn't do anyone any good." The mindless Fed can only bump around, and your original problem has not been solved at all. "

Everyone laughed except Volcker himself.

This is what Volcker faced at the time.

But today, the world's evaluation of Volcker is no longer "that damn madman" and "gambler", but "American hero" and "financial giant". Robert Solo, a Keynesian and former critic, called him "the greatest Fed chairman in American history". Greenspan praised him as "the father of American economic vitality over the past two decades." "

To fight inflation and control the "floodgates of money" requires not only wisdom, but also justice and conscience and the courage to "be the enemy of the world". Volcker was the giant who was "against the world" at that time. On the contrary, those words of praise tend to mask the loneliness, helplessness and sadness experienced by the 90-year-old during his long career at the Federal Reserve and in public service.

Volcker, a "veteran of the six dynasties" who is more than 2 meters tall and has a loose jaw, has been entrusted with important tasks by six presidents-three Democrats and three Republicans; he has experienced three crises in his life: the Bretton Woods system and the dollar crisis, the 1970s stagflation crisis and the 2008 financial crisis. In every crisis, he dares to say "no":Say no to the gold standard, no to inflation, no to financial speculation.

At that time, Volcker personally closed the gold exchange window, ended the gold standard, released unanchored currencies and pushed the human economy into an era of floating exchange rates. Ten years later, he became a lonely hero and captured the inflation tiger alive.

Volcker was upright and brave, leaving an enlightening aphorism:"A little bit of inflation is dangerous."the only useful innovation for banks is the invention of ATMs."

Read a person, such as reading a history.

The logic of this article:

I. Camp David meeting

The gentle giant

3. Volcker rule

(the text is 20,000 words and the reading time is about 50 minutes. Please read it patiently or share or collect it first.)

I. Camp David meeting

In 1971, the dollar was shaky.

At 12:00 on Sunday, August 15th, Volcker boarded a modified military transport plane that was already waiting on the runway at Andrews Air Force Base. Volcker was in the cabin of the giant transport plane, his mind still recalling the scenes of the stormy meeting over the weekend.

Volcker couldn't believe that at this top-secret meeting, President Nixon, Federal Reserve Chairman Burns, Treasury Secretary Connery, Labor Secretary Schultz and five of himself, just made a decision to change the fate of the United States and the world. Even the Secretary of State knows nothing about it.

What made him even more uneasy was that he provided the technical solution for this decision, and he was not sure what would happen next and how European countries would react. The only thing he knows for sure is that a global economic war is about to begin.

Volcker has always regretted not being able to take part in World War II and defend his country, and he has always longed for a public office to serve his country, and now he is in the position of deputy finance minister, just like General Patton during World War II. Sitting on a military transport plane bound for Europe, he officially embarked on a battle with European finance ministers.

At this time, Volcker was not the chairman of the Federal Reserve, nor was he the former director of vision at Chase Manhattan Bank. More than a year ago, on January 20, 1969, he entered the corner office on the second floor of the White House Treasury and was appointed by the president as deputy treasury secretary in charge of monetary affairs. This is the public office he has always wanted.

Volcker stood at the window and watched the motorcade celebrating the inauguration of new President Nixon on Pennsylvania Avenue. At this time, what flashed in his mind was his father's exhortation: public office means divine trust. Volcker tried to follow in his father's footsteps to save the United States from the precarious financial whirlpool.

At this time, the Bretton Woods system is teetering towards what Professor Triffin called the "Triffin problem" nine years ago. The depreciation of the US dollar is under increasing pressure, and a large amount of gold in the US treasury has been exchanged away. As an advocate of the Bretton Woods system, Volcker understood what gold meant, and the stability of the dollar represented national credit. He remembered the phrase "the word of responsibility":

"maintaining price stability is the proper meaning of a social contract. We give the government the right to print money because we believe that elected officials will not abuse their power, will not over-issue US dollars to devalue them, and will make the US dollar equivalent to gold. If we do not keep our promises, we will destroy other people's trust in the United States, and trust is everything. "

The day after he took office, Secretary of State Henry Kissinger sent him a strange congratulatory letter called "National Security Memorandum No. 7" with the words "secret" in the header and footer. It reads: "the president has instructed the establishment of a permanent working group, of which you have been appointed and must submit a report on US international monetary policy and implementation to the National Security Council by February 15." "

Volcker was unhappy to receive the "congratulatory letter" because he felt that monetary affairs should be reported directly to the finance minister, rather than Kissinger, who is in charge of national security affairs. However, he soon understood that the dollar was both international affairs and national security at this time.

Volcker remembers that as early as the Kennedy administration, European countries accused the United States of an imbalance in its balance of payments and demanded a devaluation of the dollar. Kennedy responded by cutting military spending: "if Europe does not promise to stop attacking the international status of the dollar, the United States will reduce its military aid to Europe." In the view of the United States, by cutting aid to Europe, the United States can balance the balance of payments at any time.

When the "Star" satellite signal lost to Europe suddenly stopped, the New York Times issued a warning: "just give Europeans some time to think about whether they need American guns and dollars, or not." "

But as a technocrat, Volcker knows very well that this tough battle cannot be won by the rhetoric of a financial diplomat. He, who is good at statistics and data analysis, knows best how much gold is left in the US treasury, how long it can last, and how much depreciation it will take to tide over the difficulties.

Although Volcker did not want the dollar to depreciate, a Washington quotation on the nameplate of his father's office, "Don't let your good nature be," kept warning him that solving problems was more important than clinging to theory and goodwill. In 1965, French President Charles de Gaulle transferred $400 million worth of gold stored in the basement of New York's headquarters in lower Manhattan to the Bank of France in Paris. At the time, the US Treasury had less than $2 billion in gold, less than 15 per cent of US foreign repayment obligations.

Just a year ago, at Chase's office, Volcker watched speculators attack the dollar wildly, and although he had experienced this countless times since October 1960, the ferocious attack paralyzed the entire system. When the "sacred price of $35 an ounce of gold" was breached, he remembered Kennedy's national oath to defend the dollar and swallowed hard, trying to hold back tears in his eyes. At this point, he already knew that the dollar could no longer be held.

Now, when the power to determine the fate of the dollar is in his hands, Volcker is worried that he will ruin the country's credit.

On Thursday, June 26, 1969, the Secretary of State, the National Security adviser, the Chairman of the Federal Reserve, the President's Economic adviser, and the Treasury Secretary were all present in the White House cabinet room, and Volcker stood in front of the president to report on the past five months.

President Nixon is good at diplomacy and politics, and knows nothing about finance. He even thinks that "the dollar problem can be solved easily." Volcker knew that the president would not read the 48-page memo on "basic choices in international monetary affairs" that had been submitted.

In order for the new president to understand the seriousness of the problem as soon as possible, Volcker ordered a chart of the official gold price rise. The picture shows that the official price of gold had doubled from $35 to $70. The visual impact of such an image immediately gave Nixon a sense of urgency.

Then Volcker came up with a contingency plan: to suspend the conversion of dollars into gold. "the main purpose and potential benefit of suspending the exchange is to stop the loss of our gold reserves," he said. To enhance our negotiating advantage... Force foreign countries to either hold dollars passively or let their currencies appreciate gradually. Volcker believes that foreigners are willing to hold dollars as long as the price of the dollar remains reasonable. The dollar standard can replace the gold standard, as long as the United States meets its obligations.

Finally, Volcker raised the dollar issue to the diplomatic power that Nixon was interested in, which he described as ensuring "the key position of the dollar as the world's leading reserve and trading currency."

Nixon winked tacitly at Burns with his pipe. Burns, a veteran professor, was the chairman of President Eisenhower's economic adviser, now Nixon's economic adviser, and later took over as chairman of the Federal Reserve of Martin. Nixon trusted him and asked Burns about economic events.

However, Burns, a supporter of the Bretton Woods system, would never agree with Volcker's plan. He cleared his throat and warned in a professor's tone: "No matter what we do, don't have the romantic idea of a floating exchange rate." Too many historical lessons tell us that exchange rate fluctuations. Will lead to international political upheaval. "

After listening to Burns' speech, Nixon obviously hesitated and did not say on the spot, "very well, please tell me where we are in time" and then concluded the meeting.

When everyone got up and left, Volcker approached his boss and the finance minister whispered, "I guess our policy was agreed by default." "

But several incredible things happened in the second half of 1969. One is that Armstrong landed on the moon, and the other is that the New York Mets won the professional baseball championship with a 1% chance. Third, the price of gold fell to $34.9 an ounce at the end of the year.

But Volcker was well aware that this was just a flash in the pan, writing in his memo that the dollar crisis was coming in six months' time. Sure enough, Volcker predicted that exactly six months later, in the first week of May 1971, the price of gold suddenly soared and the flint-like curtain officially kicked off.

The front-page article of the New York Times on May 5, 1971 read: "European financial centres have suffered the most violent frenzy of currency speculation in two years. Companies, banks and parties that hold large amounts of money change unwanted dollars into Deutschmarks. Or other strong European currencies. "

That morning, Deutsche Bank bought another $1 billion on top of the $1 billion it had bought the day before, and then decided not to engage in currency operations. The central banks of Switzerland, Belgium, the Netherlands and Austria immediately followed suit and closed their foreign exchange markets. Some American tourists in Europe are embarrassed that they are unable to pay their bills at the interstate hotel in Geneva because the hotel refuses to accept dollars, which is owned by Americans.

At this time, Volcker was walking back and forth restlessly in the second floor office of the Treasury. His desk is full of messages showing the escalation of the crisis. Perhaps because he was too nervous, he was in a hurry and went to the bathroom worryingly. The office of one of Volcker's most admired lawyers happens to be downstairs, and he told Volcker several times that I can always predict whether a crisis is at stake by how often the toilet flushes above.

In the second week of May, $400 million of gold flowed out of the United States, and U. S. gold reserves reached their lowest level since World War II.

Gold is in a hurry, and Volcker has realized that time is running out for the Bretton Woods system, and that in order to defend the dollar, the president must act as soon as possible and make decisive decisions. As a result, he drafted a manual on policy points. In order to prevent disclosure, he pretended to make three plans: part An is a fake plan containing a lot of false information; part C is a real plan, marked with 12 modules, beginning with "suspension of gold exchange". It also includes "balance of payments control" and so on; Plan B is deliberately omitted to confuse the enemy.

Volcker's Treasury Secretary boss was responsible for urging Nixon to make a decision as soon as possible. The Treasury Secretary was John Connery, a former Secretary of the Navy under President Kennedy who knew little about finance and finance. After he took office, he left all professional monetary affairs to Volcker. However, Connery is an excellent political performer, he is good at dancing with long sleeves, is good at diplomacy and captures people's hearts. Connery persuaded Nixon to take action with extraordinary expressiveness.

On the morning of Thursday, August 12, reports came from Frankfurt, London, Tokyo and Milan that speculators had forced the Deutschmark to rise to its highest level against the dollar in more than 20 years. Volcker felt a hint of despair and immediately reported to the president. At the same time, he telephoned Secretary Connelly, who was still on vacation at the Texas farm, and said anxiously, "I think you'd better come back as soon as possible." "

That afternoon, Nixon came to Schultz and said, "We're not quite ready." In order to get everyone ready, we must go to Camp David. The decision is made by you, Connery, Burns and me. We know that Connery might bring Volcker... But I'm not so confident about Volcker. "

Fortunately, at 05:30 that day, Connery got off the plane and went straight to the White House to meet with the President and Schultz in the old executive building. What Connery means is that Volcker should be heard. After all, he is a professional. "Volcker thinks we should sacrifice the domestic economy to save the dollar, but I don't want to do that," Nixon said. "

Connery immediately explained: "Oh, I don't think so, and I'm sure Volcker doesn't think so either." "

Nixon interrupted Connery and said in a clear, authoritative voice, "We should implement a whole set of plans at once and announce them next Monday." We'll start the discussion at Camp David tomorrow afternoon. To ensure security and secrecy, the fewer participants, the better, the three of us, of course, to make sure that Mccracken and Arthur must attend. "

Nixon paused, then made a beautiful turn when he landed on one foot. "John, you take Volcker with you." "

This beautiful turn changed Volcker's life.

On the afternoon of Friday, Aug. 13, at the president's vacation home at Camp David in Ketoctin Hills, Maryland, the president arranged every detail of the meeting, including a detailed guide to the post-meeting photo session. Nixon, who paid great attention to detail, knew that they were brewing a great change in history.

The meeting lasted three days, and the debate at the meeting was so heated that the president was like a referee listening and asking. Best of all, Volcker and Connery joined forces in a debate with Burns about suspending the exchange of gold.

At this point, Burns was appointed chairman of the Federal Reserve, but he stuck to his original point of view. Burns said bluntly:

"closing the gold exchange window, Volcker and Connery may think they are doing the right thing, but I think they are wrong. We are taking radical steps... There is a huge risk in closing the gold exchange window. First of all, there is political risk. The Soviet newspaper Truth has reported with a headline that this marks the downfall of capitalism. The second is the economic risk. World trade will take a hit. Foreign exporters will put pressure on their governments to take action. "

Connery chimed in: "that is to say, other countries don't like it, so what?" We can't let ourselves go bankrupt in order to please them. "

Burns retorted: "they will get back at us." "

Volcker was a little embarrassed by the tension, and he said in a gentle tone:

"I resent it, too. So far, I have defended the Bretton Woods system all my life, but I think adjustment is necessary. It's hard for us to continue like this. After we closed the gold exchange window, we did not sit idly by. We need to negotiate with foreign countries to form a new exchange rate regime and fix this problematic system. Now is an opportunity. "

Mccracken came out to play the game: "closing the gold exchange window, the public reaction must be negative." But on the other hand, it will also be seen as part of a tough wage and price freeze. "

Perhaps Nixon was not as deeply aware of the importance of closing the gold exchange window as Volcker, but he was well aware that he had to do something, and it was a combination of punches, not passive or forced. At this meeting, he agreed to a series of combined policies, including shutting down the suspension of gold exchange, raising import tariffs by 10%, controlling prices and interfering in labor negotiations.

At the meeting, no one, except Connery, fully agreed to launch a whole set of combinations at the same time. Later history proved that price control and intervention in labor negotiations were foolish moves, and raising import tariffs by 10% finally became an important strategy in foreign exchange negotiations.

The Camp David meeting lasted three days and ended on the evening of August 15. President Nixon delivered a 20-minute speech to the nation that night, proposing the "New Economic Policy", announcing to the world that the dollar was decoupled from gold and closing the dollar exchange window.

The next day, Monday, shares on the New York Stock Exchange tumbled 3%, and the foreign exchange market was in chaos. In London, the Hilton Hotel is trading at $2.6 to the pound in the morning, with a ceiling of $50 per person, but at night it is $2.80 to the pound. In Milan, Dr. and Mrs. Lawrence Gould, from New York, found that they could not even buy a cone of ice cream in US dollars, but fortunately they had enough foreign currency to cover the cost of going home.

At this time, Volcker is already in Europe, shuttling through major financial centers, explaining the policy position of the United States to all parties. The Paris newspaper put a picture of Volcker standing side by side with French Finance Minister D'Estaing on the front page. Volcker received royal courtesy at the famous Cleon Hotel in Paris, which reserved a room for him that de Gaulle had stayed in. The Paris correspondent of the New York Times called Volcker "the president's currency envoy."

It was the first highlight of Volcker's official career. This journey to Europe has also transformed Volcker from a pure technocrat to a financial diplomat.

After explaining the policy to European countries, the meeting of finance ministers of the "Group of Ten" on November 29th was the real battle. The Group of Ten held the rotating presidency, and Connery happened to be the chairman of the meeting at that time. At one time, the governors of finance and central banks sat at the ornate rectangular table. Volcker, as the chief representative of the United States, sat next to Connery to the right.

At this meeting, Connery made full use of his talents as an outstanding financial diplomat. At that time, the venue of this meeting, the Corsini Palace in Rome, was of great value in Western civilization, and he urged all of you to forge ahead passionately for the construction of a new system of international cooperation. When the smoke bomb was about to hit, Connery signaled that Volcker was ready to throw the problem.

Volcker put down his cigar and said, "well, hypothetically, we are willing to discuss moving the price of gold. What would you do if we raised the price of gold to 10% or 15%?" "

Connery interrupted him. "well, here's the question." Let's assume 10%. How do you respond? "

Volcker deliberately exaggerated the range so that there was room for manoeuvre, and he knew that France would only accept a 5% depreciation of the dollar against the franc. 6%. At this point, however, Volcker wants Connery, a veteran negotiator, to take the lead.

For the next hour, no one spoke at the meeting. Central bankers were smoking silently, and Volcker smoked his ten-cent cigar. The finance ministers stared at the shoes on their feet or admired the famous Roman paintings on the walls of the room.

Suddenly, German Finance Minister Karl Schiller took the lead in breaking the ice, clearing his throat and saying that Germany could afford a 10% depreciation of the dollar, "by a certain percentage point." In fact, the Bundesbank promised the Fed that Germany would not exchange gold with the US Treasury as long as the US continued to defend Europe from the invasion or infiltration of Germany by the Soviet Union.

Then other countries said they could accept a proper depreciation of the dollar, but French Finance Minister D'Estaing kept silent. Because he knows that French President Pompidou and Nixon will meet next week, when the negotiations will be the final decision.

At this meeting, Connery uttered that haughty famous saying: "the dollar is our currency, but it is your problem."

However, France is clearly dissatisfied with this. During the meeting between the presidents of the two countries, Pompidou, who is good at finance, put forward the idea of firmly "burying" the dollar as a reserve currency. Nixon, who knew nothing about economics but was good at politics, used his plans to visit China in February 1972 and a trip to Moscow in May to put pressure on the other side. After two days of bargaining, Nixon agreed to revalue the franc by 8% against the dollar in exchange for the abolition of the import surcharge.

On December 18th, carefully arranged by Connery, countries signed the famous Smith Agreement in the public conference room of the Smithsonian Institution Castle. The agreement stipulates that the official price of gold will rise from $35 to $38 per ounce, the dollar will depreciate against national currencies, and gold will continue to be frozen.

The Smith Agreement marked the formal disintegration of the Bretton Woods system. Volcker buried the fixed exchange rate system he had always adhered to, pushing human history into an era of floating exchange rates and unanchored currencies.

Nixon suddenly appeared at the closing meeting, pushing the celebration to the best part. He praised the Smith Agreement for ushering in a new era of international finance: "on behalf of the finance ministers and central bank governors of the Group of Ten countries, I am very honored to announce that the most important monetary agreement in world history has been successfully born. "

Volcker stood next to the president and thought, "I really hope it lasts three months." Because Volcker calculated that the system would only work if the dollar depreciated by at least 15%.

On February 4, 1972, only a month and a half after the Smith Agreement was signed, the price of gold in the free market has exceeded $50 per ounce, an increase of 15%. At this time, a letter of protest from French President Pompidou to Nixon was sent to Volcker for advice.

In fact, another important reason for the continued devaluation of the United States is the poor easing of Federal Reserve Chairman Burns. In order to be re-elected, Nixon made it clear to Burns: "I don't want to say goodbye to the capital Washington too soon." On the eve of the signing of the Smith Agreement, Burns replied to the President: "Please know that we will reduce the discount rate today. "

Over the next two years, Volcker frequently flew to Europe and Japan to negotiate while playing games with the Federal Reserve. On Thursday, June 22, 1972, Volcker unexpectedly proposed a floating exchange rate when he testified before the House Banking and Monetary Committee.

From February 7 to 11, 1973, Volcker flew 50,000 kilometers from Washington to Tokyo, Paris, London and Bonn in just four days to negotiate with finance ministers and complete the so-called global trip. On Monday, February 12th, Schultz, the new finance minister (Connery had previously resigned), announced that the dollar had depreciated by 10% against gold, or the official price of gold rose from $38 to $42.22 an ounce. But in the free market, the price of gold has risen to $68.95.

In March, after a meeting in Paris, Federal Reserve Chairman Burns, who has always advocated a fixed exchange rate, privately criticized Schultz and Volcker for messing up the exchange rate market. With some dissatisfaction, Volcker turned to the Fed chairman and said, "Arthur (Burns), if you want to have a parity (fixed exchange rate) system, you'd better go home and tighten the US currency right away." "

At a press conference held by the US Embassy in Paris on the same day, Schultz announced a new plan to float the currencies of Germany, France and other major European countries against the United States. This is clearly a public test of the euro. A reporter asked Schultz: "Mr. Treasury Secretary, what does this mean for US monetary policy?" "

Schultz, considering that the question should be answered by the Fed, gave the microphone to Burns. Burns said slyly: "American monetary policy is not made in Paris, but in Washington." "

The media said Burns' textbook diplomatic words were appreciated, but Volcker was very disappointed.

"We are at a turning point in American economic history," he said. Inflation in the United States is rising, and the international monetary system will be shaky. Burns refused to take international factors into account when setting domestic policy and currency. This is not right. We have ignored the responsibility of the United States as the custodian of the international medium of exchange. This responsibility is consistent with our duty to control the expansion of currency issuance Xiaobai Maimai Inc in China. I dare say that it is a wrong decision to make monetary policy in accordance with the closed-door approach of "made in Washington". "

Today, it seems that this sentence is still enlightening. The wave of the dollar has hit the global market, legal tender as an international currency, regardless of international factors, which is obviously a kind of behavior that only cares about one's own money, regardless of the flood of others.

On Monday, April 8, 1974, three weeks after Schultz announced his resignation as Treasury Secretary, Volcker resigned as Deputy Treasury Secretary. At that time, the United States was hit by the first oil crisis and had fallen into a typical stagflation crisis of high inflation, high unemployment and low growth. The Nixon Watergate scandal continued to ferment, and the Nixon administration, the dollar and the global financial system were shaky.

Volcker knew that to save the United States, the dollar crisis must be solved, but no one but the Federal Reserve could save the dollar.

The gentle giant

As soon as the news of Volcker's resignation came out, Henry Fuller, a former US Treasury secretary, brought him into Goldman Sachs Group as a partner. His mentor, Robert Roussa, asked him to work as a partner at Brown Brothers Harriman, an investment bank.

Volcker also received an invitation from Russell Reynolds, a famous American headhunter, advising him to consider accepting a position in a top investment bank with an annual salary of more than $1 million to supply him with Cuban cigars for life (of course, at that time, the United States banned Cuban cigars). What was the concept of $1 million at the time? Jim Hunt, the highest-paid player in professional baseball in the United States, earned only 750000 a year.

Volcker has been hesitant. he is eager to get a well-paid job, but he prefers to stay in public office. Just as he was hesitant, Federal Reserve Chairman Burns held out an olive branch and invited him to dinner in his apartment.

Burns said bluntly: "I need you to work with me on the Federal Open Market Committee." "

"I'm flattered, Arthur (Burns), but I have to make some money. Barbara (Volcker's wife) has just been diagnosed with rheumatoid arthritis, and I have a disabled son Jimmy at home. Oh, God knows what he will do in the future. "

"the salary we pay you will not be a problem to support your family. The president of the New York Fed earns twice as much as I do. "

"I know, but. "

"Hayes now earns 95000 dollars a year, and you know my attitude towards him. I'll make them pay you so much from the start. "

"you see, Arthur, I have been working in the government for more than five years. I'm a little tired. It's time for change. "

Burns shook his head and said to Volcker with certainty, "you're a public servant, Paul. Don't go anywhere else." "

Volcker was surprised that Burns invited him to the post of president of the New York Federal Reserve. After all, Volcker has been at odds with Burns for five years as deputy treasury secretary, and the powerful governor of the New York Fed poses a big threat to the Fed chairman. Perhaps Burns, a political veteran, is trying to woo Volcker to his advantage, or Burns is exhausted in the face of bad inflation and a weak dollar, and he needs someone like Volcker to take the lead.

Volcker did not agree to Burns on the spot. He went to Canada to catch salmon with his friends. Two weeks later, he dialed the Burns Fed office from a public phone booth next to the gas station.

Volcker's first words were: "Mr. Arthur, I can take this job." "

"well, I knew you'd agree. Have a nice vacation. "

In fact, for Walker, the job as president of the New York Fed was a temptation he couldn't resist.

On August 1, 1975, Volcker became president of the New York Federal Reserve and became a permanent member of the Federal Open Market Management Committee, responsible for managing the supply of credit and interest rates in the United States. Since then, Volcker began a difficult and brilliant career at the Federal Reserve.

On July 15, 1979, then President Jamie Carter delivered a famous speech "never recover".

"Mr. President, we are having a hard time. We just want to talk about blood, sweat and tears. "

Carter stated the views of the public in his speech. Carter naturally mentioned the problem of the dollar. "once upon a time,'as reliable as the dollar 'used to be used to describe things that were absolutely reliable, but things changed 10 years ago, and inflation eroded the value of the dollar and shrunk our savings." "

Four days after the "collapse" speech, Carter called for the resignation of all 13 members of the cabinet, including Treasury Secretary Michael Blumenthal. This is an unprecedented high-level "massacre" in the history of the president of the United States. The Carter cabinet earthquake caused gold to soar to more than $300 an ounce the next day, setting a new record.

After cleaning up the "disobedient" team members, Carter was eager to recruit, first of all, he asked the then Federal Reserve Chairman William Miller to serve as Treasury Secretary.

As a result, he also needs to find a Fed chairman immediately. Anthony Solomon, the deputy treasury secretary, recommended Volcker to the president. Carter did not respond at the same time and asked, "who is Paul Volcker?" "

On July 24, 1979, Volcker was invited to the White House to meet with President Carter. Carter sat in a rocking chair and Volcker sat next to the president and said angrily: "I attach great importance to the independence of the Federal Reserve and want to tighten policy." To emphasize this point, he also pointed to Miller next to him and said, "I hope I have a stricter policy than Miller."

During the hour-long meeting, Volcker spoke for most of the time. Carter didn't say a word, but listened attentively. When he left the White House, Volcker was so discouraged by his recklessness that he flew back to New York that night. As soon as he got off the plane, he confided to two old friends, "Oh, I screwed up." He will never give me the position. "

However, Volcker comforted himself: "it may be for the best." If I were to become chairman of the Federal Reserve, my salary would be halved. I don't know how to deal with it. I don't know if I have the right to tell my family that I want to sacrifice that money. "

One of his old friends said to him, "if the president asks you to do it, you can't refuse." What did Barbara say? "

"just like you said. Volcker nodded to each other.

At 07:30 the next morning, Volcker was woken up by a hasty phone ringing. It was the White House. On the other side of the phone, the president congratulated him on becoming the new chairman of the Federal Reserve.

Why Carter chose Volcker is still a mystery. Carter's memoir, "faithfulness to Faith", is not mentioned at all. It's just that he longed for the "voice of the dollar" to be even more extraordinary during his time in office.

In 1979, when the second oil crisis broke out, the inflation "tiger" soared at an alarming rate. President Carter was busy with price and wage controls and called on people to reduce oil consumption and lower consumption expectations. However, these measures, which proved ineffective in the Nixon era, will only add fuel to the fire.

After firing the entire cabinet, Carter seems to want to start all over again. Using Volcker may be a risky gamble, but it is also a helpless move.

On August 6, 1979, under the chairmanship of Justice Leon Higginbotham, Paul Volcker placed his left hand on Barbara's Bible, raised his right hand and solemnly swore an oath with five fingers in the air, while President Carter prayed.

The next day, Volcker sat behind the oversized desk in the Fed chairman's office, looking at hundreds of postcards, letters and telegrams. He took a puff of the "grenadier" cigar, and the smoke blinded his eyes. Although some people say that this kind of cigar smells like horse dung, he can only smoke this kind of cheap cigar after his salary is halved.

He swept the smoke with his hand and picked up some letters. These letters come from all over the country, from old friends, strange citizens, followers, and economists. Some congratulated, some expressed concern, some poured out the pain of inflation, others teased him about the difficulty of his job.

One of them, Doc Walker, wrote: "Please smoke no more than five cigars a day, even if you don't care about your health, the dollar depends on you." My old friend Tom Reese wrote to express his support for Volcker: "I have called my broker to ask him to sell gold and buy dollars. "

Volcker opened a letter from Vermont and scrawled a page that began with: "Dear Paul, I would like to express my condolences for your promotion." I am happy to see you as chairman of the Federal Reserve, but I also sympathize with the predicament you are destined to face. "

The signature is "Dear Milton, July 31, 1912". This is a letter written by the economist Friedman, signed on his birthday, and is a clerical error.

Friedman, who won the Nobel Prize in economics three years ago, is an unorthodox agitator. He has been critical of the Federal Reserve, pointing out in the famous "American Monetary History" that the Fed was the culprit of the Great Depression. Friedman believes that if Benjamin strong, the outstanding president of the New York Fed, had been alive, the Fed would not have made the fatal mistake of deflation in the Great Depression. With the exception of his mentor Burns, he did not have a good face towards several Fed chairmen at that time.

Volcker worked hard for the position of chairman of the Federal Reserve for half his life. He knew very well that only this position could save the dollar and the United States from fire and water. Now, like the suspension of gold exchange, Volcker has the power of life and death in the dollar this time.

But when he really sat in the chair of the Fed chairman, Volcker felt heavy pressure and responsibility. He could no longer answer letters casually, but he replied to Friedman:

"Dear Milton, I don't know if I'm destined to be a scapegoat in tough times. In my work, I have no objection to your idea of restricting the issuance of money. "

Just a week after Volcker took office, Volcker held his first meeting of the Federal Open Market Committee as chairman. For the meeting, he filled two pages with a summary of the meeting, and wrote at the top: "this meeting is more symbolic than usual." "this is his first test since taking office. He is in no hurry to act, but hopes that the committee members will maintain the same policy philosophy as him.

With this groundwork, the second meeting of the Federal Open Market Committee was held on September 18th. The meeting approved his policy of "slightly raising the federal funds rate". The result of the vote was 8 for and 4 against, of which three people thought the austerity was too small.

Later in the afternoon, at the end of the meeting, Volcker summoned seven Fed board members to convene the board. Volcker is going to try it out, raising the discount rate by 0.5 percentage point to an all-time high of 11%. As a result, the interest rate hike was passed at 4:3.

From the voting ratio, we can see that the Fed is not monolithic, and even there are more serious differences. At the Open Market Committee meeting, Lawrence Ruth, president of the Federal Reserve Bank of St. Louis, proposed a change of policy direction:

"well, Paul (Volcker). Is there something wrong with me, but I still want to raise this question. Can we re-examine whether it is appropriate for us to regard interest rates as the goal of traditional monetary policy? Considering that you have talked about so many issues, and that the Federal Open Market Committee has had so many unpleasant failures over the years. Can we change our way of thinking? "

The question raised by Mr Ruth is actually a sign that Fed policy is shifting to new areas. In fact, Ruth's argument is not new at all. Because as the leader of monetarism, Friedman will criticize the Fed's monetary policy objectives in the media every now and then. He should abandon the interest rate target and focus on the total amount of money instead.

In short, Friedman believes that the Fed barked at the wrong target. In fact, since Ruth joined the Open Market Committee in 1976, he has been trying to urge a change in the method of analysis to the monetarist path he supports.

Volcker had repeatedly rejected Friedman's suggestion, but at this time he was seriously considering Ruth's problem. "I don't think it's unusual for you to ask this question," he said to Ruth. We will study this issue again in the near future. I'm going to do the same. "

This near future is actually the next day. Volcker ordered an outline of a radical overhaul of the Fed's methods. A week later, he reviewed the three-page memo with confidential words. It says, "Federal Open Market Committee... In accordance with the set monetary targets, the incremental scale of the base money will be controlled at a certain level, so as to control the growth of bank credit, which may lead to wide fluctuations in ultra-short-term interest rates in the money market. "

For a long time, the Open Market Committee has aimed at controlling interest rates, and they absolutely cannot tolerate large fluctuations in interest rates. However, the aggregate target put forward by monetarism is not unreasonable. In the 1970s, with the rise of the information technology revolution, commercial banks began to use computers and information management, more and more people deposited their money in banks, and commercial banks continued to create credit money, which led to a flood of credit to a certain extent. causing the Fed's interest rate policy to fail. Friedman argues that controlling the total amount of money, especially broad money, captures new problems and is to the point.

As a result, Volcker promoted his old colleague Peter Stryant, a technical expert, to run the New York Fed trading room. Stryant's task is to control the dollar volume by quietly buying and selling securities on the government bond market on the eighth floor of the Federal Reserve headquarters building.

However, Mr Volcker's shift to pegging to monetary aggregates is not for monetarist purposes. Volcker actually wanted to adopt a mixed strategy, admiring the words of Paul Samuelson, an economist: "Central bankers are born with two eyes, one pegged to the money supply and the other to interest rates. Volcker does not think of himself as a monetarist, he is more inclined to the rational expectation school, and he is trying to release a stable expectation to the market that the Fed is controlling monetary aggregates and interest rates to suppress inflation.

However, it is clear that it is difficult for the Open Market Committee to accept his new proposal. He spent a lot of time explaining to the committee that one of his old opponents, Henry Warlick, warned Volcker: "it would be a pity to give up the interest rate target and let it seek a balance according to the forces of supply and demand." and had to reach a Faustian deal to sell his soul to monetarists. "

At the time, Volcker replied with open hands, "sometimes you have to make a deal with the devil." "

However, the market completely misunderstood what Volcker meant and went in the opposite direction of Volcker's expectations. Speculators believe that the Fed's abandonment of its interest rate target is tantamount to surrendering to inflation. The consequences of a deal with the devil are so dire that gold hit an all-time high of $850 an ounce on January 21, 1980, a record that has since been held for almost 30 years. At that time, the international Iranian hostage crisis broke out, the Soviet Union invaded Afghanistan, and the second oil crisis pushed inflation to its climax.

In desperation, Volcker had no choice but to keep raising the federal benchmark interest rate. By April 1980, the benchmark federal interest rate had reached an all-time high of 21%. On May 6th, the prime inflation rate was as high as 15%. The market lending rate fell sharply to 12% on July 1st. Over the past three months, interest rates and gold have fluctuated sharply, and the dollar has fallen another 10% against the Deutschmark.

The media satirized, ridiculed and abused Volcker's operation. The New York Times editorial said: "Volcker is a gambler. He outweighed his ability and was short of a good hand, but his bets were high. Professor Galbraith of Harvard University warned: "Don't mistakenly trust people who base their decisions on large amounts of money." "

Interestingly, the media and even some members of the Open Market Committee called Volcker a "stubborn monetarist". Friedman criticized Volcker for not sticking to the monetarist line and expanding the money supply at will.

Volcker felt helpless, but worse was yet to come. A week before the election, on October 2, 1980, President Carter publicly denounced Volcker's "rigid monetarist approach." You know, until then, Carter had been a staunch supporter of Volcker. The main reason is that Volcker continued to tighten policy in the six weeks leading up to the general election, with the federal funds rate rising from 11% to 14%.

The only benefit of Mr Volcker's approach is that the markets finally see the Fed's independence rather than succumbing to the president's re-election. But Volcker saved the dollar at all costs, killing too much. The media used Marshal Betten to hold on to Verdun during World War I, describing Volcker's austerity policy of holding on to the Verdun fortress at the cost of 350000 casualties.

On November 4, 1980, Carter lost to Ronald Reagan and failed to win re-election. Carter blamed Volcker for the defeat. 'i was warned by economic advisers when I appointed Volcker as chairman of the Federal Reserve,'he recalls. Unexpectedly, Volcker raised interest rates to very high levels, which led to a recession and became a negative factor for me to seek re-election.

On Wednesday, November 19th, Volcker leaned lazily on the office sofa and lit a cigar fixed at six o'clock in the evening. This is the 11th he smoked in a day. In the ashtray of the desk, the 10th cigar butt, which had just been extinguished, was still slowly smoking. He admits it's a bit wasteful, "especially now that it's up to 25 cents each."

Burns was smoking his old pipe in the rocking chair next to Volcker in front of the fireplace. Just two hours ago, Burns hurried to the office from Los Angeles to look for Volcker. When he saw Volcker, Burns first said, "I won't come to you without an international crisis." "

"this report was drafted by the Reagan Economic Policy Coordination Committee. I can't show it to you, but I can tell you the content. "

"are you sure you want to tell me? "

"under the present circumstances. Right. Milton (Friedman) wants to get rid of the Fed, that is, fire you and replace you with a computer. "

"that's a metaphor, Arthur (Burns). "

"I know, Paul (Volcker), but it's more than that. You know, there's Friedman and Schultz, and you know how much power they have with President Reagan. "

Volcker had never seen Burns so nervous, and he realized the seriousness of the problem. Volcker is still feeling guilty about Carter's defeat, and he is not sure what attitude the new president will take towards him.

The ridicule, sarcasm and abuse of the outside world have become ugly, and although he has long been used to it, he still feels ashamed of the public office. Nine years ago, Volcker made his own plan to suspend gold conversion. now the dollar is like a runaway horse. he is powerless in his position as chairman of the Federal Reserve and has even plunged the US economy into disaster. Volcker looked gloomy and choked at the thought, but fortunately the whole office was filled with smoke, which Burns did not notice.

To make matters worse, the fed board raised the discount rate twice to 13% the following month, and the open market committee raised the federal funds rate to more than 20%. Commercial banks have raised preferential lending rates to an all-time high of 21.5%. The media shouted that Volcker's Fed was openly usury.

Volcker also said in recalling this period of history: "if someone had told me before 1979 that I would become chairman of the Federal Reserve and raise interest rates to 20%, I would certainly dig a hole and cry." "

On Friday, January 23, 1981, three days after the inauguration of the new president, Reagan hosted a dinner in Volcker's familiar Treasury Department. At the banquet, Reagan asked Volcker cunningly, "I got letters from some people asking why we wanted to keep the Fed." What do you want me to say to them? "

Volcker forced out a smile, thanking Burns for breaking the news to him in advance.

"Mr. President, there are indeed some concerns about these issues, but I am sure you can convince them that our Federal Reserve is doing well. Unfortunately, we are the only institution in Washington that is battling inflation. "

However, to the surprise of both Reagan and Volcker, the US economy experienced its worst moment since the Great Depression in the following year, with a deep recession and high unemployment and inflation. Volcker can do nothing but keep a tight grip on monetary aggregates and high interest rates. All he can do is stick it out and wait for a flood of ridicule. Maybe Friedman was right: it all sucks anyway, and the only good news is that there's nothing worse than that, so just go ahead and do it.

The White House was like an ant in a hot pot, and Reagan came to power with the Kemp tax cuts. The supply school represented by Mundell and Laffer worked out a whole set of tax reduction reform plans for Reagan. However, as soon as the massive tax cuts were introduced this year, the government's fiscal deficit hit a new record, which made the old-school economists who stressed the balance of the government budget extremely unhappy. Volcker knew that although Reagan complained about him, he needed each other at this time. So he found Murray Wedenbaum, chairman of the president's council of economic advisers, to help arrange an one-on-one meeting with Reagan without aides.

The afternoon of Monday, February 15, 1982, which coincides with Washington's birthday, is a public holiday in the United States. The president, dressed in a striped golf shirt and brown casual pants, had a good conversation with Volcker in a relaxed atmosphere. Obviously, they have reached a consensus.

Reagan wrote in his diary that day: "meet Paul Volcker." I think we have made a new breakthrough in establishing friendly relations and reached a consensus on lowering interest rates. I think we can lower short-term interest rates by 3-4 percentage points by June. The question of lowering long-term interest rates will be considered in the future. "

At that time, the Reagan administration's deficit was widening, and the market believed that the government deficit must be solved in the financing market, which was bound to compete with the market for dollars and then keep pushing up interest rates. Volcker disagreed with the Reagan administration's tax cuts, arguing that the government would tighten the budget and increase taxes to avoid widening the deficit and then interest rates would come down.

So Volcker offered lower interest rates in exchange for the Reagan administration to tighten its finances and raise taxes. Money and finance work together to solve the problem, which is in line with Mundell's thumb theory, but Volcker's method of operation is the opposite of Mundell's. On August 19, 1982, the tax increase bill was passed. The supply school was so disappointed that a group of young supply school officials resigned from the Ministry of Finance.

At this time, car sales fell to their lowest level in 20 years, and house prices fell rapidly. The unemployment rate has exceeded 9.5%, and more than 10 million people have lost their jobs. An issue of the magazine even angrily published a "wanted notice" for Volcker and his Fed colleagues on the cover. Farmers in Ohio, factory owners in the Great Lakes and tough unions all came to get even with Volcker.

"the cost of fighting inflation is not small, when protesters surrounded our building. "Walker recalled. "We are fighting a just war, we are not willing to retreat (because of pressure), and everyone will understand the correctness of doing so in the future. Volcker tried to gain public understanding.

One day, when he was waiting for Barbara (Volcker's wife) in a Fed chauffeured car after work, he found the driver reading a book, "how to profit from inflation." Volcker could not believe his eyes. He had fought so hard with the president and Congress. How can you tolerate traitors in the backyard in the end. Volcker couldn't help asking, "Mr. Pania, why are you reading such a book?" "

He turned to Volcker and said, "I don't think you'll mind. This is a book on sale from a bookstore." It is priced at $10.95 and sells for $1.98. "

Volcker smiled. "that's a small step." "

This is a very good sign, when inflation has dropped to 5%!

At the meeting of the Federal Open Market Committee on October 5, 1982, the members voted by 9:3 to shift the monetary policy goal to lower interest rates. Four days later, the New York Times published "Congratulations to Mr. Volcker's achievements".

Volcker's trouble at this time is that Mexico, next to the United States, has a debt default crisis. The market believes that Volcker "completely failed" in banking regulation, and Congress instructed Volcker to deal with the problem. At the time, economists agreed that Volcker sacrificed jobs, the economy and Mexico to fight inflation-the Fed's credit.

But all Mr Volcker can do is pray that Mexico does not have a chain reaction and that the economy recovers as soon as possible.

At this time, in October 1982, "ducks with warm water in the river were the first to feel the smell of spring," and the Dow rose to 1000 from 770 in August. This is a mythical story. With the gradual decline in inflation, a large amount of international capital began to enter the US capital market. Invest heavily in commodities such as crude oil to chase low-inflation financial assets such as stocks, bonds and money funds.

Does this herald the end of the long and painful era of stagflation? Did Volcker win?

In the winter of 1982, the American economy and even the world economy entered a historic inflection point. After nearly a decade of downturn, the US stock market is beginning to enter the "beautiful scene" that Mundell and his followers once predicted, and an epic bull market is beginning.

Inflation fell to 3.2 per cent in 1983, around 4 per cent in the next two years and 1.9 per cent in 1986. The decline in the rate of inflation has far exceeded the forecasts of the government, opposition and aides, and the economy has begun to pick up in the coldest winter. The GDP growth rate was 4.5% in 1983 and 7.2% in 1984. Statisticians shouted that the economy was overheating and called on the Federal Reserve to regulate, up from 4.1% in 1985. In the 25 years after 1982, the annual growth rate was 3.3%, the same level as in the 25 years after World War II.

At the time, the New York Review of Books praised: "Reagan's election as president means profits that smell like musk in the air again." Soros later called this economic miracle the "Reagan cycle".

On Monday, May 28, 1983, in his East side apartment in New York, Volcker said to Barbara, "I'm applying to meet with the president next week." "

Barbara answered, "do you want to hand in your resignation?" "

Two months later, when Volcker's four-year term expires, he is considering whether to run for re-election.

"not all of it. "

Barbara said excitedly, "I thought you said you wanted to think about it. We don't have any savings, and I don't live my life. But I have never stopped your career choices, and I am proud of your achievements. But now that you have overcome inflation, your mission is done. "

"for the time being, this is the end of the prologue. "

Barbara interrupted him: "do you really think you are Churchill of America?" "

"I wish I wasn't Churchill. The Englishman kicked Churchill out of the prime minister after he saved the country from danger. "

Volcker's real idea is that he just wants to do it for another year and a half to two years, finish the unfinished business, and finish it well. However, he felt that he could not serve another term because he owed too much to Barbara, who was in poor health and sacrificed a lot to support Volcker.

At the time, Reagan hesitated. After all, he didn't want to be influenced by an uncontrolled Fed chairman like his predecessor, Jimmy Carter. On the night of his meeting with Volcker, Reagan wrote in his diary: "I met Paul-did I appoint him chairman of the Federal Reserve on August 1, or someone else?" Judging from the reaction of the financial markets, it seems that he should be re-elected. I don't want to shake their confidence in recovery. "

In fact, Reagan had no choice, except for the complaints of some economists, investment banks, lawmakers, Treasury officials and markets all supported him. Volcker's popularity is on the rise.

At noon on June 18, 1983, Reagan delivered a customary radio address at Camp David, the president's leisure place. However, instead of playing cards according to the script, he used the tone of the old reporter's revelation: "well, I'm not wearing a straw hat and gripping the receiver like you saw in the movie (Reagan was an actor)." But before I start today's broadcast, I'd like to make an important announcement. "

Reagan surprised White House officials by announcing Volcker's re-election in such a highly informal way. But Volcker doesn't care. A month later, the plenary session of the Senate approved Volcker's appointment. Senator Gahn clearly expressed his support for Volcker: "I doubt that apart from Volcker, no Fed chairman in the past has been able to persist in fulfilling his responsibilities under such severe circumstances." "

3. Volcker rule

At 11:45 on February 24th, 1986, Volcker called Barbara and said, "I want you to cook dinner tonight." "

"what a pleasant surprise. I don't think my cooking is that good. "

"well, I'd like you to practice regularly. "

"Oh, my God, that makes me sad. What's going on over there? "

"at the Fed board meeting just now, my opinion was rejected by a majority. I can't do this anymore. "

"come on, Paul, you're not like that. Go talk to Baker first. "

"I will. We'll have lunch and talk. "

In fact, Barbara did not know that it was Reagan who arranged for Treasury Secretary James Baker to start the council infighting.

At the Senate hearing on Volcker's re-election, Proxmeier, a senator from Wisconsin, said to Volcker: "We have built this huge, bulky, brutal debt monster." This situation coincides with the saying that it is not a failure to report, and the time has not yet come. Whether it is inflation or high interest rates, or both, it will nip the recovery in the bud. So I said, Paul, good luck, you poor guy. "

The audience roared with laughter, except Volcker's face was serious.

Volcker knows very well that the next term may not be any easier than the previous one. Volcker has repeatedly rejected the Reagan administration's demand for currency deficit, forbidding the Federal Reserve from directly buying treasury bonds. But if the Reagan administration continues to expand the deficit, it is likely to push up real interest rates again, and his conflict with Reagan is bound to be on fire.

During his second term, the economy recovered rapidly and inflation was completely curbed. Volcker teamed up with Wall Street giants to save the bankruptcy of continental Illinois banks and avoid a financial shock from the Latin American debt crisis. But it also gave Volcker and the Fed a reputation as "too big to fail", even though he didn't want to.

At this point, Volcker carefully assessed the market risk, and only the federal deficit gave him a headache. Market fears about fiscal deficits have outweighed inflation. In December 1985, the Senate passed the Gramm-Radman-Hollins Act, which attempts to comprehensively reduce the federal deficit and avoid the risk of catastrophic fiscal deficits.

At the same time, US Federal Treasury Secretary James Baker is actively promoting the negotiations on the Plaza Accord. The White House believes that the dollar has appreciated too fast in the past few years, which is bad for US exports, and has also used it to cut dollar interest rates to ease the federal budget deficit.

The cunning Baker sent a signal that Volcker brokered the negotiations in the hope that the dollar would fall. In fact, for Mr Volcker, the outcome of the Plaza Accord has been mixed.

Less than six months after the agreement was signed, the dollar had depreciated by 50%, much more than the market had expected. Volcker believes that the dollar is depreciating too fast and wants to use limited policy tools to slow down. But to Volcker's surprise, Baker was not only adept at using international affairs to interfere with monetary policy, but also extended his hand to the Fed's most core power department, the Federal Reserve Board.

On Monday, February 24, 1986, two Federal Reserve banks in Dallas and San Francisco applied to the board to reduce the discount rate by 0.5 percentage points. Volcker wanted to procrastinate, but a director named Preston Martin was tough.

"then let's vote on it. Volcker blurted out that, with the authority of the past six years, Volcker believes the vote can fix this. But this time, he is too confident.

As a result of the vote, Volcker lost the showdown at 3:4. Another governor, Martha Siegel, expressed the joy of victory: "the Fed is no longer an one-man stage." "

In fact, it was only when the results came out that Volcker realized that it was a crucial showdown. Both Martin and Siegel were appointed by Reagan, and they, like Reagan and Baker, tried to implement loose monetary policy.

But even if they were Reagan's cronies, they had only two votes, making it difficult for them to get things done on the council. The Federal Reserve Board has seven members, each appointed by the president for a 14-year term. In order to prevent the government from interfering with the autonomy of the central bank, Congress staggered the 14-year term of office of its members, and a president could only appoint a maximum of two directors. However, as Reagan was re-elected, he could appoint four governors.

Just half a month before the vote, Reagan appointed two new governors to replace one expired trustee and one who resigned. In this way, Reagan regained control of the council from Volcker with four votes.

After the result of the vote, Volcker was furious: "from now on, you can do whatever you want." But I'm not here anymore. He walked out of the board room, swung it, and slammed the door.

That afternoon, Volcker found Treasury Secretary Baker, "I brought a resignation report." "

"what are you talking about? "

The result of the vote at the council meeting this morning overturned my unwillingness to lower the discount rate. "

"Paul, don't do anything stupid, you can't resign. "

On March 7th, the Federal Reserve announced the results of reducing the discount rate. Just the day before, Deutsche Bank and the Bank of Japan also cut lending rates. Director Martin proclaimed in a high profile that this was an "unprecedented" model of international cooperation. The Reagan administration also said that the international consultation and cooperation that Treasury Secretary James Baker is promoting has made great achievements.

Volcker recalled that he really didn't want to leave the Fed in this way. But what really made Volcker decide to leave was a decision made by the council on May 1, 1987.

At that time, the council voted to approve three holding banks-Citigroup Inc, Xinfu Bank and J.P. JPMorgan underwrites certain bonds. This decision actually violates the Glass-Steagall Act of 1933. Volcker strongly opposes it because he knows very well that this decision means that with the arrival of the era of financial mixed operation and the substantial relaxation of financial regulation, commercial banks engaging in investment banking business will create huge financial risks.

The media interpreted the vote in this way: "the majestic Mr. Volcker rarely lost in front of the Fed governor appointed by President Reagan." This suggests that Fed governors appointed by Reagan who prefer a free-market system are preparing to oust the chairman when it comes to regulation. "

On the afternoon of June 1, 1987, Volcker visited Reagan and handed in his resignation. At 10:00 the next morning, Reagan stood in front of the microphone in the White House press room, with Volcker on the left and Griffin on the left. Reagan announced that Greenspan would replace Volcker as the new chairman of the Federal Reserve. He expressed "deep regret" for Volcker's resignation and spoke highly of Volcker's achievements in fighting inflation.

When asked why Volcker resigned, he quoted a sentence from the Old Testament as an understatement: "sometimes you come and sometimes you go." Charles Schumer, a congressman from New York, said the president "should bow down to Volcker and beg him to stay in office."

In fact, Wall Street China Finance Online Co Ltd thinks so, too. After the news of Volcker's resignation at 10: 00 that morning, investors sold dollars frantically and bought gold on a large scale. Gold rose sharply and the dollar fell against the Deutschmark. Paris, France, was even forced to suspend foreign exchange trading. The market used money to vote to express silent anger.

Volcker left, leaving the Fed with an operating manual.

In the first week after resigning, the Federal Reserve Board received bags of letters and postcards. Among them are former presidents Gerald Ford, Richard Nixon, and British Prime Minister Margaret Thatcher, of course, most of them from old friends, lawmakers, citizens and people from all walks of life. Many letters are headed with a simple address: president Paul Volcker in Washington, D.C.

President Ford's personal letter praised Volcker's "integrity": "it is a blessing for the United States and the world to have you at the helm in times of crisis." I sincerely appreciate your excellent work and your personal sacrifice. "

Mrs. Thatcher said in her letter: "I admire your firm pursuit of sound monetary policy and your superior skill and understanding and compassion in the complex task of curbing inflation in the world's largest economy. In an era of drastic change, in an era of great pressure on the world financial system, your role is inestimable. "

Michael Pavilek from Pennsylvania said to Volcker: "although I couldn't find a job for a long time, I always understood and agreed with your policy as chairman of the Federal Reserve." You saved my life savings so that they didn't come to nothing. Another person who lacks courage is likely to succumb to political pressure, and you have made outstanding contributions to our country and people. "

Most of the letters thanked him "as a taxpayer" and "a citizen". One of them made a request in the letter: "I hope you have time to guide Alan Greenspan and let him move forward in your footsteps." "

Since Volcker left office, the Fed has entered the Greenspan era. The brilliant Greenspan, who controlled the Federal Reserve for 20 years, was once the most powerful figure in the United States, known as the global "economic czar." During his term of office, he has made brilliant achievements in fighting the Asian financial crisis and promoting the information revolution. Greenspan is also an ambiguous master of prophecy, good at playing a game of "rational expectation" with the market. There is a rumor in the market that "as soon as Greenspan opens his mouth, investors around the world should prick up their ears."

Had it not been for the 2008 financial crisis, the old man would have forgotten Volcker, and people would only remember the "dollar president" Alan Greenspan. Greenspan did not keep his promise. He cut interest rates frantically and carried out loose monetary policy many times. Before the outbreak of the subprime mortgage crisis, Greenspan and Bush Jr. tried to "recreate the American housing dream", cutting interest rates to near zero, a large number of subprime mortgages on Wall Street, excessive innovation in financial derivatives, and abnormal financial prosperity, which ended in the subprime mortgage crisis and the financial crisis.

Volcker was reluctant to leave the Fed, but he knew that the White House would not welcome him as "just a scapegoat in tough times" as long as the crisis was over. He also felt that he owed Barbara so much that it was time to return to his family. In fact, during his tenure at the Treasury and Federal Reserve, Volcker's families were financially strapped. Volcker's son is disabled and Barbara suffers from severe arthritis and can only work part-time in a construction company.

Barbara once said, "before Paul took the job, we were barely able to save some money, but now all the money we earn has been spent before we know it." "in order to subsidize their families, they have to rent out their houses and live in one bedroom and one living room in the remote suburbs of Washington. Volcker also felt guilty: "how did I get my family to such a difficult position?" "

However, instead of seeking a high salary on Wall Street after leaving the Fed, Volcker returned to teach at Princeton University, his alma mater. At that time, a student from China was attracted by Volcker's vivid lectures and profound wisdom. After class, Volcker came over and said:

"Young people from China, do you like it? "

"it's nice, but there are some things I don't understand. "

"you will understand, because China is rising. "

The Chinese student, Zhu Min, later became a vice president of the International Monetary Fund. Volcker is very interested in China, and like European finance ministers and financiers, many Chinese economists and financial officials admire Volcker. On one occasion, Volcker came to China and asked Zhu Min to hope to meet Mr. Zhu. That night, President Zhu hosted a banquet for Volcker and talked to each other very happily. When he left, Mr. Zhu said to Zhu Min that Volcker is really a good friend of the Chinese people.

In 2009, after the outbreak of the financial crisis, President Obama invited Volcker to serve as chairman of the President's Economic recovery Advisory Council. On January 21, 2010, Obama announced major reforms to the US banking sector, banning banks from using federally insured deposits to make risky proprietary investments and opposing further mergers within the financial sector.

Obama took the opportunity to "consume" a handful of Volcker, which he named the Volcker Rule. In this regard, Volcker felt very surprised and helpless. During the speech, Volcker turned to Obama and said, "how about we call it the Obama Rule?" "

The so-called Volcker rule is to separate the proprietary business of financial institutions from commercial banking business. If banks want to do proprietary business, they cannot use customer deposits and low-interest federal government loans. Fed member banks use securities as collateral to borrow from the Fed at lower interest rates.

The Volcker rule is, to some extent, a response to financial deregulation when Volcker left the Fed. Over the past 20 years, the subprime crisis has once again proved how wise Volcker was to oppose financial deregulation. The Volcker Rule was included in the Dode-Frank Act, the US financial reform law introduced in 2010.

However, the original plan of the Volcker rule was only four pages, and Volcker's original intention was to pass a simple law to restrict financial giants from speculative trading as much as possible. But Obama failed to resist pressure from Wall Street, and the four-page plan eventually turned into a thousand-page bill, with extremely complex rules and reduced regulation of financial institutions.

In fact, the position offered by Obama was a false one, and he just wanted to use Volcker's prestige to calm the hearts and minds of the people. At this time, Volcker was so old that he no longer had the strength to "be the enemy of the world".

However, Volcker still made some real voices about the global fate in 2011: "this is an era when foreign countries own us trillions of dollars, and this is an era when we are more dependent on foreign borrowing. This is an era when the whole world is counting on the dollar to sustain its purchasing power. This sentence is diametrically opposed to the words "our dollars, your problems" put forward by his boss at that time, Secretary Connery.

Volcker was born in Cape May, New Jersey, before the Great Depression. his father was the chief executive of a small town in the state. He lived a clean, diligent and persistent life, managing the city for 20 years and saving it from the Great Depression. Volcker inherited his father's fortitude, incorruptibility and public service, and spent half his life in public service interpreting the highest virtues celebrated by the ancient Romans: courage, integrity, wisdom, prudence, and dedication to himself and serving the country.

Some people say that a statue should be erected in the square in front of the Fed building, and in the Fed's 100-year history, there is only one person who is the most worthy of standing here: Paul Volcker.

In the era of monetization of fiscal deficits and welfare populism, Volcker's will, integrity, courage, poverty and noble personality constantly remind us of how to curb the impulse and temptation to issue money indiscriminately.

In fact, in 1995, Volcker received millions of dollars from a small and beautiful investment company. But Barbara was bedridden with complications of diabetes and arthritis. In order to pay homage to Barbara and compensate her for her life, the Volckers decided to launch the Barbara Volcker Women's Rheumatism Center at the New York City Special surgery Hospital and donate all the money.

Three years later, Barbara died. Volcker, strong and resolute in career, like a giant, but extremely dependent on Barbara in life and emotion. Barbara's departure dealt a heavy blow to Volcker. To Volcker's slight consolation, "it was a rare life experience that brought comfort to Barbara before her death in 1998." She deserves the honor. "

Since then, Volcker spent most of his time on public affairs with no income, such as dealing with the Enron scandal and helping World War II victims recover their property. Usually, Volcker lives in a small house on the outskirts of New York and still travels by subway. As in the previous half of his life, in order to make a living, he had to rent out his house and live in an old house as small as a student dormitory. Big and tall, he looked cramped and crowded in this room, and most of the space in the room was filled with books and materials. Every weekend, Volcker invites his daughter to help him wash his clothes.

Today, the 92-year-old Volcker, once a soft-spoken, firm-eyed giant, has given up cigars with inarticulate speech and a vague memory.

When everyone pretended to be asleep and everyone was caught in a currency bubble, only the old man was awake. However, he is lonely, and perhaps only Barbara can give him real warmth, understanding and sense of security.

Postscript

"I would like to make it clear to you that if banking institutions are still protected by taxpayers' money and continue to speculate at will, a crisis will still occur. I am too old to live to the day when the crisis comes back, but my soul will come back to haunt you! "

On February 2, 2010, at a hearing in the US Senate on the "Volcker rule" in the financial regulation bill, the 83-year-old Volcker retaliated when lawmakers questioned that his proposed legislation to strengthen financial regulation was outdated.

Former US Secretary of State Henry Kissinger called Volcker "the wise man of our time." "in fact, Volcker is not a wise man. There is no shortage of wise people at any time. Sometimes something goes wrong because there are too many wise people.I think, "he is a hero, is a real hero."

"half a lifetime of wind and clouds cut off the ancient emperor, a cloud of misty rain for life. "

Pay homage to Paul Volcker!