Abstract

Financial Deregulation, Monetary Tightening, Transnational Capital Flows: the United States and the Origins of Neoliberal Financial Policies

This contribution tries to advance knowledge on the linkage between the effects of Volcker’s monetary tightening on interest rates since late 1979, and the origins in the early 1980s of financial capitalism as it developed from the 1980s through to the collapse of investment banks like Lehman Brothers when the 2008 financial crash took stage. Compared to the extant literature, it brings into focus the policies and legislative measures implemented under the Reagan Administration to deregulate financial markets to make a case for financial deregulation as a largely overlooked pivot in the origins of a global financial capitalism that proved to be central to the last 40-year neoliberal global economy. On the other hand, this chapter focuses on the implications of Volcker’s monetary tightening on the cost of financing non financial firms through well-established traditional financial instruments such as the stock market and the bond market. It identifies the combined instability and depreciation of U.S. dollar in exchange markets following the second oil crisis and the effects on the cost of loans to companies and corporations, but also on the profit of commercial banks and credit conditions that Volcker’s monetary stringency set off as the origins of untenable credit conditions that featured the U.S. economy since the beginning of 1980. Therefore, it focuses attention on the anti inflationary measures and financial deregulation policies passed by the Congress and White House since early 1980 to establish a linkage between such soaring cost of financing the U.S. economy, the ensuing down ward sloping competitive edge of U.S. manufacturing, and the deregulation of the financial system as an instrument to let the competitive edge of American firms and trading companies bounce back. Finally it establishes a linkage between high interest rates, the economic recession of the early 1980s and the crisis the hit hard the American corporation and the appearance of a brand-new, derivative-oriented financial environment as the specific response created by deregulation of financial markets under Reagan to declined profits of U.S. financial and non financial institutions.