Burton Abrams

The Federal Reserve should not be treated as a branch of the administration.

Yes.

When you get a personal conversation between the president and the Fed, there's too much possibility for a manipulation to take place.

And all of a sudden, we get the worst decade of inflation probably in U.S. history. And the question I had was, why did he do that? Why did he abandon his prosperity without inflation ideas? And did Nixon play a role in that?

I think his lowering the discount rate is a capitulation to Nixon.

Both the discount rate and the federal funds rate now begin their decline. Exactly what Nixon had hoped for and wanted.

No, he was a person that really wanted to do a good job with monetary policy. But he was being pressured by Nixon. Nixon wanted Burns to be afraid that he was going to lose control of his board. So now all of a sudden Burns is worried that he is the odd man out.

They're fixated on the election. They need a strong economy. And they're kind of panicking that Burns hasn't given it to them. Burns has done the things they want. Like, what do they want exactly? Well, he was trying to parcel out a bit of benefit, but hadn't taken the full step yet.

Nixon actually tells them, well, okay, by April, you can do whatever you want and you can reverse yourself. Try to reverse the expansionary policies in April and try to offset any damage that is done in the lead up to the election.

Well, I'm disappointed in Arthur Burns. Unfortunately, as soon as Nixon was reelected, he started looking at the next two-year election coming. And so I kept the pressure on. He could not be stopped.

You know, it's a little bizarre because, you know, he won in a landslide in the election. But anyway, I think we could have avoided the 10 years of problems.

So I almost immediately headed down to Washington, D.C. from Delaware. Like immediately? Yes.

The economy needs to be rolling. Yeah, you had it.

You have to have white hair, spectacles, and a pipe. Apparently, Burns would use the pipe to emphasize statements that he was making. Oh, how does that work? When he was asked a question, he would take time to restuff the pipe, make it more dramatic before he spoke. So that's a good trick.

Eisenhower, to his credit, said there's no way we're going to do that. Unless we have evidence that the economy is entering into a severe recession, we're not going to manipulate the economy for political gain. Nixon was very upset by this, lost the election, and said that's not going to happen again.

The tapes were not extremely accessible. They were available on reels. There were no transcriptions or very few. They certainly didn't transcribe the monetary policy conversations. Sure.

It was a little cassette player. Yeah. And then you had to put on earphones and try to make out the garbled conversations that existed.

People would knock and bang on the table like. Is that true? Can you hear him banging on the table in the Nixon? Oh, yes. Oh, yes. And coffee cups hitting, you know, they serve coffee and the coffee cups would be clattering.

It was probably a newscast that talked about the Nixon tapes. And I said, this is what I've been waiting for.

Well, everyone else was interested in Watergate. I was interested in monetary policy.

I mean, from a picture you showed yesterday, these people are, they're buying REITs instead of REITs.

Burns is making an appeal to Nixon that he doesn't want to stimulate anymore. He's still holding out.

No. So I suspect that behind the scenes, pressure is still to give Nixon the monetary policy he wants.

The discount rate is the interest rate that the Federal Reserve will lend to banks. So by lowering the discount rate, they're telling banks, come and get it. You can borrow at a lower rate and then make loans. This tends to increase. The money supply.

There's two theories. And one is that Burns thought that the inflation was caused by irrational inflationary expectations and that the stimulus that was going to occur would improve the unemployment situation without exacerbating inflationary pressures.

Arthur Burns had a reputation of being an extremely cautious monetary economist who had written a book called Prosperity Without Inflation.

The other explanation is that he capitulated... And gave in to the pressures imposed on him by Nixon.