If President Carter had listened to the financial markets, instead of trying to lecture them, what might he have heard? That is, what were the markets trying to tell him about his policies?
A NSWER . The flight from the dollar was a massive vote by the financial markets of no confidence in the CarterAdministration's economic policies. The markets were telling him that they thought his policies were inflationary and anti-growth. Dollar-denominated assets were marked down because the markets saw that the dollar's value was eroding both at home and in relation to other currencies abroad. At the same time that the inflation rate wasdeclining in Germany, Japan, and even the U.K., it was accelerating in the United States. Yet the Federal Reserve was continuing to pump reserves into the banking system, leading to expectations of higher inflation down the road.