1966, when suspending the investment tax credit, not rate hikes, stopped the boom
In the US credit crunch of 1966, deposit rate ceilings and an equipment investment boom dried up housing finance, and on November (month 11) 8 President Johnson suspended the investment tax credit to target the borrower itself. Rate, starts and investment data are checked against source documents, separating what matches the video's telling from its limits.
Updated Oct 14, 2026
Markets already neared 6% while housing finance ran dry
The effective federal funds rate rose from 4.42% in January (month 1) 1966 to 5.76% in November (month 11), printing 6% on some days in October (month 10). That year Treasury bill yields approached 5%, and deposit rate ceilings bled banks of funds to market rate products. Nonfarm housing starts (seasonally adjusted annual rate) plunged about 41% from 1,403 thousand units in January (month 1) to 824 thousand in October (month 10), while single family starts fell 19.2% from 964 thousand to 779 thousand units.
Discount rate hike requests were declined in the summer of 1966
In the summer of the 1966 credit crunch the Federal Reserve Board declined requests to change the discount rate, fearing the announcement effect. The rise from 4% to nearly 6% described in the video matches the effective federal funds rate and market rates, not the discount rate.
President Johnson suspended the investment tax credit on November (month 11) 8, 1966
On November (month 11) 8, 1966, President Johnson signed the temporary suspension of the investment tax credit on machinery and equipment and accelerated depreciation on buildings, enacted as H.R. 17607 (Public Law 89-800). The signing statement named restoring more normal interest rates, freeing funds for homebuilding, and trimming excessive machinery order backlogs as its purposes. The law provided for automatic restoration in January (month 1) 1968, and at signing long term rates sat about 0.25 percentage point below their late summer peaks.
The suspension was lifted early while investment was already cooling
The suspension applied retroactively from October (month 10) 10, 1966, was originally scheduled through the end of 1967, but President Johnson signed the restoration bill (H.R. 6950, Public Law 90-26) on June (month 6) 13, 1967, restoring effect from March (month 3) 10. Real equipment investment grew 15.4% in 1966, but its contribution to growth swung to -0.65 percentage point in 1967. The quarterly contribution fell to 0.69 in quarter 3 of 1966 and printed -6.58 in quarter 1 of 1967.
The brake that worked targeted the borrower, not the price
Rate hikes failed to stop an equipment boom that never checked the price, and instead dried up housing finance bound by deposit rate ceilings first, broadly matching the video's diagnosis. The turn reads as the combined result of September (month 9) targeted liquidity support, the announced investment tax credit suspension, and the rate relief that followed, rather than a single prescription. And with investment momentum already fading from the summer, the suspension alone cannot be named the sole cause that stopped the boom.
Why 1966 cannot be overlaid on today
At the time, deposit rate ceilings and bank centered finance channeled the adjustment cost onto housing. Today's market centered finance and the funding contest between AI and governments are a different structure, and the 1966 prescription is not proven for today. Its quick stabilization must not be read as evidence of a bottom or of future returns.
Sources
- Interest Rate Controls (Regulation Q) — Federal Reserve HistoryAccessed Oct 14, 2026
- Federal Reserve Discount Rate Press Releases in the 1960s and 1970s — FEDS NotesAccessed Oct 14, 2026
- Statement by the President Upon Signing Bill Suspending the Investment Tax Credit — American Presidency ProjectAccessed Oct 14, 2026
- Nonfarm Housing Starts (HOUSTNF) — FREDAccessed Oct 14, 2026
- Effective Federal Funds Rate (FEDFUNDS) — FREDAccessed Oct 14, 2026
- Real Nonresidential Equipment Investment and Contributions (Y033RL1A225NBEA, B010RW2A224NBEA, Y033RZ2Q224SBEA) — FRED/BEAAccessed Oct 14, 2026
- How the credit crunch of 1966 set the tone for central banks — MoneyWeekAccessed Oct 14, 2026
- The Role of Depreciation and the Investment Tax Credit — Accounting Historians JournalAccessed Oct 14, 2026
- The Investment Tax Credit, Once More — Boston College Law ReviewAccessed Oct 14, 2026
- Effect of State Usury Laws on Housing Starts in 1966 — Journal of Financial and Quantitative AnalysisAccessed Oct 14, 2026