Paul Volcker: the banking ace who crushed inflation

Paul Volcker, who died last week aged 92, was an inspirational figure whose controversial policies helped inaugurate the modern era.

If anyone came to epitomise the power of the independent central banker before the phenomenon became fashionable it was Paul Volcker, the former Federal Reserve chairman who has died aged 92, says the Financial Times. "A towering figure in every sense" he stood at 6ft 7in Volker helped shape American policy for six decades, serving under multiple US presidents, from John F. Kennedy to Barack Obama. Appointed to chair the Fed by Jimmy Carter in 1979, his defining achievement was vanquishing "the scourge of inflation that ravaged America's prestige and power in the 1970s and early 1980s".

An inspirational figure

Volcker delivered shock therapy, pushing interest rates as high as 20% and driving the economy into recession, notes The Wall Street Journal. "The cost was steep," says The New York Times both to ordinary Americans and to Volcker himself. As consumers stopped buying houses and cars, millions of workers lost their jobs and "angry homebuilders" nailed chunks of timber to the Fed's marble HQ in Washington in protest. Yet Volcker's victory over inflation "inaugurated an era" in which politicians "largely deferred to the central bank, allowing technocrats to chart the course of monetary policy".

Volcker became an inspirational figure to his successors. Ben Bernanke, who chaired the Fed from 2006 to 2014, kept on his bookshelf one of the chunks of wood that Volcker received during the anti-inflation campaign. As he observed this week, Volcker "personified the idea of doing something politically unpopular, but economically necessary".

Paul Adolph Volcker Jr was born in New Jersey in 1927. He was the grandson of a German immigrant tea and coffee salesman. His father was an engineer who, as "city manager" of suburban Teaneck, helped steer the local community through the Depression, says The Daily Telegraph. From him, Volcker "first acquired beliefs in... the importance of economic stability and the relative unimportance of his own material wealth". In later life, he famously favoured drugstore cigars and cheap, ill-fitting suits.

After Princeton and Harvard, where he took a masters in public administration, Volcker joined the US Treasury. In 1957 he moved to the private sector, joining Chase Manhattan as head of research. Volcker went on to interlace long stretches of public service with a lucrative career on Wall Street most prominently at investment bank Wolfensohn & Co. But his reputation for "austere integrity" and stubborn "probity" made him a popular choice as an independent arbiter, says The New York Times. Those qualities were put to good use after the 2008 banking crisis when he framed what became known as the "Volcker Rule" essentially restricting banks from making investments not intended to benefit customers, but to increase their own bottom lines.

The end of the age of respect

"Volcker was unfortunate enough to live just long enough to watch the thing he spent the last decade crafting and defending callously and cynically killed," says Jon Shazar on Dealbreaker the Trump administration plans "to loosen" the rule. Still, at least he won't have to watch things get any worse. "We're in a hell of a mess in every direction," he told The New York Times last year. "Respect for government, respect for the Supreme Court, respect for the president, it's all gone."

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