Volcker wants to crush inflation
You are Jimmy Carter. Prices in the grocery store keep jumping. That is inflation: money buys less every month. Paul Volcker, who runs the Federal Reserve, wants to crush it by making it expensive to borrow. He will raise interest rates until it hurts.
Savings and loans will scream, because they pay depositors a little and hold thirty-year home loans at 6 percent. If he hikes, those old loans become a losing pile. Inflation is already hurting ordinary people.
History
A savings and loan takes deposits from neighbors and makes thirty-year home loans. For decades the whole job was this: pay depositors 3 percent, lend at 6 percent, count the money on the golf course by 3 in the afternoon. People in the business called that 3-6-3. It is slang, not a 1979 rate table. Paul Volcker, who runs the Federal Reserve, is killing inflation by making it expensive to borrow. On Saturday night, October 6, 1979, he does it. People later called that the Saturday Night Special. If the rate you must pay depositors jumps toward 11 percent while your old mortgages still pay 6, you lose money every day. That mismatch is a duration gap: you borrowed money that can leave tomorrow, and you lent it for three decades. The loans are still sitting in houses. Nobody from Washington has driven to them.
