Richard Nixon

"The roots of the inflation problem lay partially in the ’60s, when the administration of President Lyndon B. Johnson fought the Vietnam War and his domestic war on poverty without increasing taxes to finance these efforts. The resulting inflationary pressures — too few goods being pursued by too many dollars; government competing with consumers and industry for goods and services because of the war; government overspending — drove up prices without increasing output or pro¬ ductivity in the u.s. economy. The eroding u.s. dollar, the world’s benchmark currency for foreign exchange and trade, especially in oil, caused dislocation in the world economy. The economic problems were further complicated by the policies of Richard Nixon’s administration. By 1974, inflation in Canada was running at around 11 percent annually, the same as in the United States. As a result of this inflation, it was cheaper for a company bent on expansion to buy its competitor’s production capacity than to build new factories. The resulting lower overhead on the production floor translated into better profit margins down the line."

"“Moral obligation” bonds were the inspired invention of John Mitchell. At the time Mitchell (who would go on to be Richard Nixon’s attorney general and a notorious figure in the Watergate scandal) was a partner at the well-connected Manhattan law firm Mudge, Rose and had earned a reputation (as well as a considerable fortune) as a specialist in municipal bonds. Working with Governor Rockefeller’s staff, he had come up with a way that would allow the state to provide the equivalent of a guarantee for projects the state was constitutionally prohibited from guaranteeing. As specified by the shrewd mechanism Mitchell had created, the “moral obligation” construction bonds would still not be guaranteed by the state. However—and this was Mitchell’s inspired idea, which allowed the circumvention of the restrictive provisions in the state constitution—the state would declare it had “a moral obligation” on an annual basis to replenish a reserve fund adequate to pay the next year’s debt service. The state legislature, encouraged by Governor Rockefeller, agreed that this reserve fund was indeed a “moral obligation.” And since the state now acknowledged its “moral” duty to keep sufficient moneys available, underwriters and banks were willing to accept this promise as a binding guarantee. The bonds were sold to the public as if they were a blue chip investment."