The flood of “funny money” — that is, the Federal Reserve creating billions of dollars and then trillions of dollars in new currency, unbacked by even an ounce of silver or gold — can be traced back to Aug. 11, 1987. That is the day when Alan Greenspan replaced Paul Volcker as the head of the Federal Reserve.
In the prior five years, Volcker had slammed on the brakes at the Fed, easing the Discount Rate seven times in six months in 1982. The effect on interest rates was dramatic.
The stock market loved the idea of Alan Greenspan taking over. On Aug. 11, 1987 the Dow opened at 2635.84 and closed at 2691.96. That doesn’t sound like much now, but it is 248 percent above the bear market low in 1982, when it dropped to 772.13.
Of course, two months later, on Oct. 19, 1987 the Dow lost 508 points — 22.6 percent — which surpassed the crash of Oct. 29, 1929 that is now known as Black Tuesday.
Yes, times sure were different back then. Anyone want to go back?