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It’s hard to translate monetary policy nuances into personality-driven narratives.But Christopher Leonard managed to do it Easy Money Lord.
In it, he follows Thomas Hoenig, the outspoken Kansas City banker who in 2010 was single negative vote The Federal Open Market Committee has opposed the U.S. central bank’s quantitative easing program in policymaking. He turned the humble economist into the protagonist of a compelling story about how the Federal Reserve changed the overall nature of the U.S. economy.
Honig is in many ways a natural central banker. A thoughtful, quiet, short-tempered man who spent years at the Fed as head of the Kansas City branch, he was a Midwesterner at his core: cautious, balanced, the opposite of attention-seeking.
But in the wake of the financial crisis, he bucked the traditional Fed consensus, risking public outrage (not to mention a flood of criticism from his peers) by warning of a radical experiment in monetary policy that would involve injecting unprecedented amounts of money into the Fed funds. The U.S. economy will increase inequality and encourage more risk-taking on Wall Street.
He was right, of course. We are all speculators now, and Leonard emphasizes this throughout the book, focusing not only on the politics and macroeconomics that drive Fed policymaking, but also its implications in the real world.
More than a decade ago, the Federal Reserve decided to fully activate the liquidity faucet and finally increase its balance sheet from $2.3 trillion in 2010 to $7 trillion in 2020. Most investors and even many ordinary people realize that the central Banks have manipulated the market in some profound way.What smart investing is possible in a world where teens talk about ‘buying the dip’, retail is in vogue Robin Hood Apps push meme stocks higher while yield-hungry pension funds pour money into cryptocurrencies?
It’s all part of what Leonard calls the “ZIRP era,” referring to a “zero interest rate policy” that makes price discovery in the U.S. market nearly impossible. He unravels all the obscure trader terms and their meanings, weaves them into a 40-year history of central banks and their key players, and often returns to Honig and his warnings as a touchstone to tie them together .
Combining narrative nonfiction with big ideas can be difficult. One of the best things about this book is that through Honig, business journalist Leonard was able to tell the complex story of how we got here in a completely unreliable way throughout the half-century. There are real people here, right The real world makes real decisions.What’s more, it’s not only Easy money for about 10 years. It’s a culture in which the Federal Reserve has taken over the country’s major economic role from the government over the past few decades.
Central banks have always held a critical but worrying place in the U.S. political system. Americans need the Fed, but don’t like it being too powerful. It is both a government agency and a private bank. “It is controlled in Washington, D.C., but it is also decentralized. It has complete control over the money supply, but does not replace the private banking system,” Leonard wrote. “It’s insulated from voters but broadly accountable to politicians.”
This strange middle ground makes bankers like Alan Greenspan, Fed chairman from 1987-2006, politicians were more than happy to hand over decision-making power to others, relative to the politicians wielding more power. With low interest rates and other monetary tools, the U.S. central banker has created a luscious growth on Wall Street that is highly effective but disconnected from reality.
The “irrational exuberance” led by the Federal Reserve—to use Greenspan’s memorable phrase—was behind the dot-com bubble; the 2008 crash; the vital repo market that underpinned billions of dollars in financial transactions over the past few years; Years of trouble; stocks, even the most speculative ones, have largely outperformed during the global pandemic (we don’t know much about it, as the narrative stops around 2020).
Part of the underlying problem is that Greenspan and most of his successors worry more about price inflation than asset inflation, which is good for the investment class after all.This is convenient as Greenspan himself is very involved in being a part of the course, see details at someone who knows Via Sebastian Malaby. The more he does to prop up the market, the better for the business elite, and the less politicians have to do, creating a dysfunctional dance in which the fate of asset owners and everyone else falls. farther and farther.
But Honig was always more concerned with the high street. He could see that, especially over the past decade, while inflation (often a nuisance for those worried about easy monetary policy) has not risen, asset prices are encouraging everything from our record corporate debt bubble to energy Speculation in an overleveraged commercial real estate market.
In fact, there is now academic evidence that the Fed has been artificially lengthening the recovery cycle for decades in ways that have been masked huge economic problem, producing larger, more destructive bubbles.
For some time now, many of us have been concerned about when this latest model will catch on.Given Fed Chairman Jay Powell’s admission that today’s inflation is no longer “temporary” And both interest rates and balance sheets need to normalize, and we may see some pain this year. What happens when the central banker becomes “the only game in town” (quoting another easy money’s Cassandra, Mohammad Elian), and finally, by choice or force, unplug?
Nothing good. We built “a whole economy” around “zero interest rates”. Not just in the US, but globally.It’s huge,” Honig said. “Now, think about the adjustment process. new Equilibrium is reached at a higher rate. Do you feel free to spend money? Do you think no one will suffer? Do you think there will be no winners and losers? no way. Or, as Leonard himself put it, the financial crisis of 2008 never really ended. It just morphed into another crisis and the bills have not yet been paid.
Easy Money Lord: How the Fed is destroying the U.S. economy Christopher Leonard Simon and Schuster, $30, 362 pages
Rana Foroohar is a global business columnist for the Financial Times
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