Monetary Policy
Jude Wanniski
November 11, 1985


Volcker's Nov. 6 letter to the House Banking Committee removes the M-l obstacle to lower interest rates, although CEA chairman Beryl Sprinkel continues to argue within the White House that inflation is imminent and the Fed must tighten forthwith. At White House economic-policy council Nov.7, Treasury Secty Baker polished off Sprinkel by asking if anyone present could produce an inflationary sign. There's little to resist easier monetary policy in next few months, with $325 gold seen as a "floor" and $380 as a ceiling that would set off alarms. The two new Governors, Manley Johnson and Wayne Angell, may be able to vote by February FOMC meeting; Volcker said to want them confirmed soon to take up internal work burdens. Fed Gov. Henry Wallich, an automatic austerity vote, is ill, collapsed on airplane returning from IMF meeting in Seoul, missed November FOMC meet, speculation he may resign, giving RR yet another appointee. Johnson will zip thru confirmation hearings, White House thinks. Angell's hearings will be interesting because he's written Fed's central role is to stabilize price level and not manage the unemployment rate or GNP growth (hooray!!) Will this cause problems with committee Democrats? Some worry, but exchange could be educational for members of Congress and make it easier to get monetary reform -- which requires adherence to Angell's principles. By the way, Senator Dole sponsorship of Angell has given him common cause with Kemp for first time in years, and Dole responded positively to my offer to have Alan Reynolds brief Angell on politics of confirmation process (so we are talking to Angell and are excited at what we find). Quirk: Manley Johnson's economics teacher was Jim Gwartney of Florida State, a shameless Laffer-Curve supply-sider; Gwartney's teacher was Wayne Angell, 20 years Manley's senior.

The Wall Street Journal editorial this morning, "Doctoring the Dollar," is accurate. International monetary reform is in the air, the float as good as dead, and high officials at Treasury, White House, Fed and Congress are even getting comfortable discussing g-o-l-d. Bob Mundell spent an hour with Volcker recently and reported PV concentrated all his questions on gold: How to get back, what price, alternatives and options. Top Treasury people talk about a "way station" on the way to gold, a commodity-basket target. And I found genuine enthusiasm at Treasury, esp. Dick Darman, for the "educational impact" expected from the Kemp-Bradley Washington monetary conference, which begins this evening. Darman says Volcker remains very interested in a long-term reform, but that we can't expect him to take lead when Administration isn't clear on what it wants, i.e., Regan and Shultz aren't on board. But that may change too. Solid reports that Shultz isn't the ardent monetarist anymore. And Regan's right-hand man, Al Kingon, is already talking about a formal reform in 1987. The scenario gets rosier. (On a fiscal note: Darman and Kingon both still see high probablity of tax reform by next spring, and I think they're right).