Yes folks, I'm back, at least for a bit.
It is worthwhile contemplating momentarily the circumstances of that bottom of the bear moment 19 years ago. The US economy, indeed most of the world economy, was in deep recession, the deepest since the 1930s, which would continue for another three months. The Fed and the Reagan administration had been at war with each other, the former engaged in a monetarist experiment that pushed interest rates through the roof, while the Reagan supply siders were cutting taxes big time.
What pushed things to the brink was a presidential election in Mexico, with the incoming Finance Minister, Jesus da Silva, coming to New York to inform the banks owed Mexican debt that Mexico would default if interest rates did not come down. This led him to Washington and a series of meetings there that culminated in an agreement between Fed Chairman Volcker and President Reagan: Volcker would cut interest rates if Reagan would scale back the final round of income tax cuts. It was the leaking of this agreement that turned around the stock market and triggered the long bull market, not to mention the actual implementation of it.
Another impending anniversary is on August 15, the 30th of the Nixon wage and price controls. This also coincided with a devaluation of the dollar and the final closing of the gold window. Although it would be another two years before floating exchange rates became fully the norm among the leading capitalist economies, this date and its package of announced policies was the effective death knell of the Bretton Woods system and the end of the postwar "Golden Age."
It is worth noting that a motivation behind all this was for Nixon to get reelected the next year despite opposition to his ongoing war in Vietnam. According to the rules of Bretton Woods, the US should have had a recession to overcome its increasing trade and balance of payments deficit, especially given that the monetarist Germans refused to lower their interest rates. But, Nixon was not about to subordinate US economic policy or interests to a bunch of foreigners or some globalized set of rules, even if those were essentially set up by the US. Nixon was not about to run a recession in the year before an election, and he didn't. But, after he was reelected, things really blew all to hell in 1973 and 1974. Ah, such fond memories....
Of course the rising indebtedness and balance of payments deficits of the US suggest that those years may not be totally irrelevant to contemplate at the present time, even though we now have floating and no more Bretton Woods (although we still have its organizations, the IMF and World Bank). Barkley Rosser Professor of Economics and Kirby L. Kramer, Jr. Professor Incoming Editor, Journal of Economic Behavior and Organization MSC 0204 James Madison University Harrisonburg, VA 22807 USA tel: (001)-540-568-3212 fax: (001)-540-568-3010 email: rosserjb at jmu.edu website: http://cob.jmu.edu/rosserjb
----- Original Message ----- From: "Doug Henwood" <dhenwood at panix.com> To: "lbo-talk" <lbo-talk at lists.panix.com> Sent: Monday, August 13, 2001 10:11 AM Subject: happy birthday, bull
> Wall Street's great bull market, which may well have died sometime
> last year, celebrates its 19th birthday today. The Dow, which closed
> on August 12, 1982, at 776.9, rose 1.4% on Friday the 13th to close
> at 788.1. The recession ended a couple of months later, and the
> Roaring Eighties were soon underway.
>
> Doug
>