william mcchesney martin, then chairman of the federal reserve, had very good contacts with the pentagon with the defense producers. and through the federal reserve system, those directors and branches all around the country, the information was pouring in, showing that the economy was heating up. to martin, inflation was more than a distant threat. it was a present reality. the federal reserve board decided to fight it. in december 1965, they raised the discount rate. johnson hit the ceiling. he announced publicly he would call bill martin, the chairman of the federal reserve, down to the ranch for a tongue-lashing. but raising the discount rate didn't keep inflation from growing. it breaks my heart to go shopping. the war kept growing, too. when neither the administration nor congress applied fiscal restraints, the fed decided to go it alone again. they used an open-market operation. in january 1966, they sold government bonds to tighten up the nation's money supply. interest rates rose dramatically. soon, any business sensitive to interest rates was caught in a credit crunch. the hous