Fundamental Economics
On October 6th of 1979, when the recently appointed Chairman of the US Federal
Reserve Paul Volcker held an extraordinary Federal Open Market Committee meeting on what was considered to be the urgent and serious inflation situation unfolding in the US domestic economy, he closed the meeting having successfully attained a majority of members of the participating money centre and commercial banks representatives to vote for his initiative of actively injecting pure liquidity via ‘non-organically’ you could say, adding to the money supply – in this case to the M1 category of money – by using the FED’s dealer desk to buy in markets and also by lowering the reserve deposit requirements of US-licensed domestic banks.
This new process of shifting the prices around in money markets has not ever been abandoned by US central bank chairmen since then and has become the standby process of all following central banks everywhere else in the Western World since then till now.
Organically, the price of money (the interest rate) is described using economist Irving Fisher’s Equation of Exchange:
M1 x V1 = P1
--------
T
That is, the Money Supply defined by actual deposit accounts that can be drawn on plus all currency issued as paper and coin, multiplied by the Velocity Circulation in the domestic economy equals the interest rate obtained over T being ‘time.’
Without there being any external factors impinging on that formula or ‘equation’ inflation only occurs because of natural supply and demand dynamics in the productive economy.
Central banks however, actively manipulate or at least you might say, introduce an external factor at ‘M1’ the Money Supply and this is termed ‘monetary policy;’ and governments affect the V1 (Velocity Circulation of money and credit) by taxation policies or spending inclinations and other administrative factors – and this is termed ‘fiscal policy.’
In the case of the position with the economy during the period of the Carter Administration, Paul Volcker’s moves did not at all curb inflation until long into the final year of Carter’s Presidential Term of Office, and the market collapsed right as he was conducting debates with his Republican contender Ronald Reagan.
In fact, when Paul Volcker began his Chairmanship, interest rates were at around 6 percent and they rose right through his active disturbance of the Money Supply policies until they hit more than 18 percent. Prices of produced goods never fell anywhere until after the general markets collapse – but then when they did they did so immediately and with a violent and sudden dropping action.
Historians look back in hindsight and often suggest that core organic inflation had been the result of Middle Eastern oil prices having escalated due to Arabic and especially Islamic contentions none of which had much at all to do with the actual American domestic economy as such, albeit there can be no doubt but that political antagonisms were building between the Shia Islamic world dominated by Iran, and the West, which tended to be hand-in-glove with the Sunni Islam of Saudi Arabia.
It is often forgotten by the general public media, that Saudi Arabia as an economic entity only exists on account of a militarily-enforced arrangement between itself and the United States of America called the ‘Arab-American Company’ aka ARAMCO, without which registration affording a specific ARAMCO number to an oil trader, no one in the world can ship processed raw crude along any sea lane policed or at least ‘power projected’ over by the US navy.
This is in fact the underlying reason - or the econo-political subtext - of Chinese (Beijing) military manoeuvres in seas across the globe. They wish to and intend to, move refined oil, petroleum, from Iran and Turkey and Venezuela to themselves via sea-lanes that they control and thereby become able to by-pass the ARAMCO shipping number procedure -, buying cheaper oil and also sending some to places like the East Coast of Africa where they want to establish economic hegemony.
