The former Federal Reserve Chairman, Paul Volcker, has died at the age of 92. Volcker is infamous for his introduction of extreme fiscal policies in an attempt to turn around America’s spiralling inflation of the 1970s. This followed America’s abandonment of the Bretton Woods Agreement, and the official end of the gold standard that had driven the global economy since the end of World War II.
At 6’ 7” Volcker was a physically imposing figure and is often described as a giant; both literally and as a leader of the global financial system. He had various jobs in US government for much of his adult life, before being named as Chairman of the Fed in 1979 – a post he would hold until 1987.
As a result of President Nixon’s initial abandonment of the gold standard, inflation had spiralled in the 1970s. At the height of the crisis, US inflation peaked to a worrying 13.5%. To combat this, Volcker introduced what came to be known as the ‘Volcker shock’; a huge increase to interest rates which eventually saw them rise to 20%.
This reduced inflation but caused a significant recession across America, and had knock-on effects throughout the world. When taking the Fed chair, he was quoted as saying “The standard of living of the average American has to decline”, and decline it did. America’s decision to abandon the Bretton Woods Agreement also fuelled a rise in currency crises in a number of South American countries.
Volcker and gold
Volcker’s impact on gold cannot be understated. Before becoming Fed Chairman, Volcker was an undersecretary in the US Treasury Department between 1969 and 1974. During this time, he advocated and helped oversee America’s abandonment of the gold standard. Speaking later, Volcker went so far as to say: “Gold was the enemy to me because that was a speculative vehicle, while I was trying to hold the system together.”
The gold price however actually benefited at first from the Volcker shock, with the ensuing recession pushing the gold price higher. As the system stabilised however, the gold price dropped, starting a prolonged bearish period for precious metals.
Volcker is survived by his second wife, and his two children from his first marriage.