When Reagan Did A Nixon

A Benjamin Cole post

Thanks to the White House tape-recording system installed by then-President Richard Nixon, we have transcripts of Nixon ordering then-Fed Chairman Arthur Burns to gun the presses before the pending 1972 election.

Never underestimate Nixon, who had an uncanny sixth sense for national and global politics, as well as monetary policy.

But lately it came to this writer’s attention that President Ronald Reagan was a crafty fellow as well. From David M. Jones’ 2014 book, Understanding Central Banking: The New Era of Activism:

“A second incident—one that, according to Volcker, [Bob] Woodward got right—involved a hush-hush unpublicized meeting at the White House just prior the Reagan’s reelection in 1984. Volcker was ordered by [Reagan’s Treasury Secretary and Chief of Staff] James Baker to attend this highly confidential meeting, which turned out to have only three participants. Volcker, James Baker, and President Reagan. At this meeting, by Volcker’s account, Baker “ordered” Volcker not to tighten Fed policy “under any conditions” prior to Reagan’s reelection (quoted in Woodward 2000). This unprecedented order by Baker in the presence of Reagan was, of course, totally inappropriate. It fundamentally violated the Fed’s independence within government. If revealed, it would have severely damaged Fed credibility and greatly unsettled the global financial markets.

In recounting this incident, Volcker said with a wry smile that what Baker and the President did not know was that Volcker was, at that very time,  urging his fellow policymakers to ease rather than tighten. Specifically, Volcker was worried that the Continental Illinois Bank failure at that time had caused an unintended tightening of bank reserve pressures, accompanied by an unwelcome spike in the federal funds rate…

In any case, Volcker remains shocked to this day be being called to this secret 1984 meeting at the White House, and being ordered directly by Baker—in the presence of the President—not to tighten under any conditions prior to Reagan’s reelection. Not since the days prior to the 1951 Treasury-Federal Reserve Accord had there been such an explicit White House threat to Fed independence.”

Actually, I think the Reagan White House was within its rights, and that the Fed should be a part of the Treasury…as was publicly recommended by Reagan’s Treasury Secretary, Don Regan.

The current arrangement, that of an independent Fed, is undecipherable to the public on many levels. Who knows who is on the 12-member FOMC? The public does not understand who is responsible for monetary policy, and even if it does understand, cannot vote accordingly.

Are surreptitious White House policy meetings—ala Nixon and Regan—a better way?