Volcker (56 page)

30.
The so-called smoking howitzer tape that forced Nixon's resignation recorded the conversation with Haldeman on the morning of June 23, 1972, the same day of the British devaluation. No wonder so few people remember the devaluation.

31
. See George Willis, August 7, 1972, “The White Plan for an International Stabilization Fund: A Chronology,” Personal Papers of Paul Volcker. According to the
Washington Post
, July 26, 1992, p. B5, Willis took a leave from Treasury in 1942 and served in the navy during the war, so he probably did not work on the design of Bretton Woods.

32
. Memorandum from Willis to Volcker, Personal Papers of Paul Volcker, January 11, 1972.

33
. The conversation is based on Volcker's recollection.

34
. Ibid.

35
. PIPAV.

36
. See the interview with Shultz in SFGate.com, July 9, 2006.

37
. The details that follow are from a series of memos from George Willis to Paul Volcker entitled “Main Principles of Plan X,” August 1, 1972. See Plan X Folder, Personal Papers of Paul Volcker.

38
. See Robert Solomon,
The International Monetary System, 1945–1981
(New York: Harper & Row, 1982), pp. 242–43.

39
.
New York Times
, September 27, 1972, p. 70.

40
. Ibid.

41
. Shultz met with Friedman on September 21, 1972, and had left a telephone message for Volcker to join them (Telephone Logs of Paul Volcker, September 21, 1972, Federal Reserve Bank of New York Archives, Box 0108480). There is no record that a meeting ever took place.

42
. Speculation against the dollar began on January 23, 1973, when the Swiss National Bank announced that it would allow the Swiss franc to float. The
New York Times
(January 24, 1973, p. 51) reported, “The dollar was ‘hit' in the belief that other ‘strong' currencies such as the West German mark would follow the franc's lead.”

43
. Cable from Brandt to Nixon via U.S. embassy in Washington, February 9, 1973, provisional translation, Hans Noebel, Chargé d'Affaires, Nixon Papers, Letters from German Embassy, National Archives II, College Park, MD.

44
. Ibid. Germany had born the entire burden of keeping dollar-mark within the bands mandated by the Smithsonian Agreement. See the
Washington Post
, February 11, 1973, p. A1 continued, “In an effort to prevent the mark from rising … the West German central bank bought $6 billion with about 20 billion marks.”

45.
Message from Nixon to Brandt, February 10, 1973, via the State Department, Nixon Papers, Letters from German Embassy, National Archives II, College Park, MD.

46
. On January 31, 1973, only days before Nixon's correspondence on the foreign exchange crisis, the front page of the
New York Times
featured an article on the guilty verdict against G. Gordon Liddy and James W. McCord in the Watergate burglary trial and one outlining American proposals for international monetary reform.

47
. Message from Nixon to Tanaka, February 3, 1973, via John Ehrlichman, Nixon Papers, National Archives II, College Park, MD.

48
. The following quotes are from the Memorandum of Conversation, February 8, 1973 (prepared by Sam Cross), Personal Papers of Paul Volcker.

49
. Telephone Memorandum, February 10, 1973 (9:15 A.M.), from Ingersoll to Volcker through Jack Bennett, Volcker's deputy at Treasury, Personal Papers of Paul Volcker.

50
.
New York Times
, February 12, 1973, p. 40.

51
. Ibid.

52
. The following quotes are from “Informal Notes on a Meeting in the Finance Ministry,” February 10, 1973, Edward Hermberg, Financial Attaché, Personal Papers of Paul Volcker.

53
.
New York Times
, February 13, 1973, p. 45.

54
.
New York Times
, February 13, 1973, p. 1;
Washington Post
, February 13, 1973, p. 1; and the
Times
(London), February 14, 1973, p. 1.

55
. See
New York Times
, February 14, 1973, p. 55. Also see Transcript, Press Briefing with Paul Volcker, February 13, 1973, p. 3, Papers of Paul Volcker, Federal Reserve Bank of New York Archives, Box 0108476.

56
. Data on the yen are from the
New York Times
, February 14, 1973, p. 1 continued. Data on the German mark are from Datastream.

57
. Tanaka is quoted in the
New York Times
, February 15, 1973, p. 89, and Schmidt is quoted in the
Washington Post
, February 14, 1973, p. A17.

58
.
New York Times
, February 12, 1973, p. 40.

59
.
New York Times
, February 17, 1973, p. 41.

60
. Ibid.

61
.
New York Times
, February 18, 1973, p. 209.

62
.
New York Times
, March 4, 1973, p. 1.

63
. According to the
New York Times
(March 6, 1973, p. 1), “When the major European governments announced that the international currency markets would be closed this simply meant that the government broker—who sets the official daily fixing of currency values—would not be in business.”

64
. The
Washington Post
, March 10, 1973, p. A1, reports that Canada, Indonesia
(representing the “poorer nations”), Japan, Sweden, and Switzerland were also invited.

65
. See Volcker and Gyohten,
Changing Fortunes
, p. 112.

66
. This conversation is based on the recollection of Paul Volcker.

67
. From the testimony of Arthur Burns,
To Amend the Par Value Modification Act of 1972: Hearings Before the Subcommittee on International Finance of the Committee on Banking and Currency
, House of Representatives, 93rd Congress, 1st Sess., March 6, 1973, p. 119.

68
. Volcker and Gyohten,
Changing Fortunes
, p. 113.

69
. See
New York Times
, March 13, 1973, p. 49, for the floating arrangements, and
New York Times
, March 17, 1973, pp. 1 and 41, for the final communiqué.

70
. See Volcker and Gyohten,
Changing Fortunes
, p. 113.

71
. Ibid. The
New York Times
, March 17, 1973, p. 1, quotes Burns as saying, “whatever happens to the discount rate is decided in Washington, not in Eu rope.”

72
. PIPAV.

73
. See
New York Times
, April 3, 1974, for Simon's political struggles.

74
. Letter from Rumsfeld to Volcker, April 9, 1974, Papers of Paul Volcker, Federal Reserve Bank of New York Archives, Box 108473.

75
. The ministers and central bank governors of the ten countries in the Group of Ten, sometimes called the G-10, met in Paris on March 16, 1973, under the chairmanship of Valéry Giscard d'Estaing (see
www.ena.lu
). Giscard d'Estaing was elected president of France on May 19, 1974.

76
. This conversation was reported on the day after Volcker's resignation. See the
Washington Post
, April 9, 1974, p. D11.

77
.
International Herald Tribune
, February 14, 1973.

78
. Transcript, press conference, February 13, 1973, Personal Papers of Paul Volcker.

1
. For more details, see Lawrence Ritter, William Silber, and Gregory Udell,
Principles of Money, Banking and Financial Markets
, 12th ed. (Boston: Addison-Wesley, 2009).

2
. PIPAV.

3
. Burns would say later (see page 132) that he knew Volcker would not be a “rubber stamp,” but he also disparaged Volcker in his diary (see the previous chapter).

4
. PIPAV.

5.
Details on the battle between Sproul and Martin appear in Robert P. Bremner,
Chairman of the Fed: William McChesney Martin Jr. and the Creation of the Modern American Financial System
(New Haven, CT: Yale University Press, 2004), pp. 99–102.

6
.
New York Times
, May 12, 1970, p. 57.

7
. See William Greider,
Secrets of the Temple: How the Federal Reserve Runs the Country
(New York: Simon & Schuster, 1987), p. 341.

8
.
New York Times
, May 22, 1972, p. 53.

9
. Burns questioned the travel budget in February 1970, ostensibly justifying a shift in international responsibilities from the New York bank to the board. See Allan Meltzer,
A History of the Federal Reserve System
, vol. 2, book 1 (Chicago: University of Chicago Press, 2009), p. 585n.

10
. Letter from Russell Reynolds, chairman of Russell Reynolds and Associates, November 23, 1973, Personal Papers of Paul Volcker.

11
. See
New York Times
, January 5, 1973, p. 23, and
New York Times
, January 9, 1975. Hunter disclosed that his annual salary was $150,000 but he signed a “pay package” worth $3.75 million over five years, which works out to $750,000 per year.

12
. PIPAV.

13
.
New York Times
, April 9, 1974, p. 55.

14
. This information comes from Paul Volcker.

15
. Volcker waited until June 1974 before leaving the Treasury, because he wanted to attend a Committee of Twenty meeting to promote a statement supporting “surveillance of the floating rate system … that takes international as well as national interests into account.” The Committee of Twenty was set up by the International Monetary Fund in 1972 to discuss monetary reform. See
Washington Post
, June 14, 1974, p. A1.

16
. This conversation is based on the recollection of Paul Volcker.

17
. The chairman of the Board of Governors receives the same salary as a member of the president's cabinet, but bank presidents are paid at the discretion of each bank's board of directors, with the approval of the Board of Governors.

18
. The 81 percent figure reflected the survey taken in October 1974, as reported in the
New York Times
, August 3, 1975, p. 36. See
New York Times
, July 14, 1974, p. 1, for the 15 percent number.

19
. This quote and the remaining quotes in this paragraph are from the
New York Times
, July 14, 1974, p. 1 continued.

20
. The Consumer Price Index rose by 12.1 percent from December 1973 through December 1974.

21
. Venezuela increased the price of a barrel of crude oil to $14.08 on
December 28, 1973. According to the
New York Times
(December 29, 1973, p. 31), “The new posted price is 400 percent larger than the price last January 1.”

22
. Between 1955 and 1964 the Consumer Price Index increased at an annual compounded rate of 1.65 percent, and between 1965 and 1974 it increased at a 5.09 annual rate. These data are from Lawrence H. Officer and Samuel H. Williamson, available at
www.measuringworth.com/inflation
.

23
. See “The Great Inflation: Lessons for Monetary Policy,” monthly bulletin, European Central Bank, May 2010. Also see the forthcoming volume edited by Michael Bordo and Athanasios Orphanides,
The Great Inflation
(Chicago: University of Chicago Press), and especially the article in that volume by Andrew Levin and John B. Taylor, “Falling Behind the Curve: A Positive Analysis of Stop-Start Monetary Policies and the Great Inflation.”

24
. Narrow money supply (defined as currency plus demand deposits) grew at a 2.4 percent annual growth rate in the early period (December 1955 through December 1965) compared with an annual growth rate of 5.4 percent in the second period (December 1965 through December 1975). These are the annual geometric growth rates in the M1 data series labeled M1SL, available at research.stlouisfed.org/aggreg/.

25
.
New York Times
, March 5, 1965, p. 45. Also see chapter 2 for an extensive discussion. Robert Barro suggested that the break with the past was signaled by the removal of silver from most American coins in 1964. See Barro, “United States Inflation and the Choice of Monetary Standard,” in Robert Hall,
Inflation: Causes and Effects
(Chicago: University of Chicago Press, 1982), p. 104. Barro is correct with respect to circulating coins, but the removal of the gold cover seems more directly related to the Federal Reserve's discretionary control over the money supply.

26
. See
New York Times
, June 19, 1974, p. 61, “House Unit Passes Gold Amendment,” for the earliest indication that the purchase of gold would be legalized. Presidential Executive Order 11825 became effective on December 31, 1974. It invoked provisions of Public Law 93-373 to revoke earlier Executive Orders banning gold holding.