The Lords of Easy Money

Starred review from November 15, 2021
Years of economic policy that flooded the financial system with money has made the economy more fragile and unfair, according to this probing history. Business reporter Leonard (Kochland) recaps the revolutionary measures the U.S. Federal Reserve Bank has instituted from the 2008 crash up through the Covid-19 collapse: a policy of keeping interest rates close to 0% to promote growth, and a program of “quantitative easing,” which has injected trillions of dollars, created out of thin air, into the economy to further stoke it. The result, he argues, is asset bubbles in everything from stocks to risky investment instruments called collateralized loan obligations, which could burst and tank the economy if the Fed closes the money spigot; meanwhile, the inflation of asset prices lets the asset-owning rich increase their wealth as the middle class falls further behind. Leonard shrewdly dissects the policy wrangles roiling the Fed behind its facade of technocratic consensus—he presents a sharp riposte to glowing accounts of former Fed chairman Ben Bernanke’s leadership—while offering a trenchant analysis of how the Fed controls and misshapes the economy. The result is a timely and persuasive challenge to the Fed’s new economic orthodoxy.

December 1, 2021
A financial journalist offers a contrarian view of the workings of the Federal Reserve. "The word dollar is...just a slang term for American currency, which is actually called a Federal Reserve Note." So writes Leonard, author of Kochland: The Secret History of Koch Industries and Corporate Power in America, at the beginning of this investigation into the complexities of how money works. There's nothing in the Constitution that mandates a central bank, and the U.S. essentially operated without one until the early 20th century. That such a bank was founded was a result of populist demand, and an irony lies in the fact that the Federal Reserve's last two decades of decisions have so favored the wealthy that it serves as an engine of inequality. It does this through several doubtful stratagems, including printing money in unprecedented quantities, such that "the amount of excess money in the banking system swelled from $200 billion in 2008 to $1.2 trillion in 2010, an increase of 52,000 percent." This vast pool of cash, an instrument of what economists call quantitative easement, is meant to stimulate the economy in relatively nonspeculative ways. However, with the cost of borrowing at zero and even below-zero interest, the banks have been encouraged to take huge risks, since that's where the profit lies. Awash in federal cash, too, the banks have not channeled it where it was meant to go, namely Main Street, but instead pushed it into the hands of the already wealthy. Using a former Federal Reserve banker named Thomas Hoenig as his Virgil, Leonard shows how the economic crises of the last two decades are the products of "an economic system that had stopped working for a majority of Americans," driven by bankers but filtered through such creatures as "zombie companies," entities "that carried so much debt that...profits weren't enough to cover...loan costs." Zombies eat brains--but they can also devour whole economies, including ours. The federal banking system has built a house of cards, Leonard cogently warns. Expect it to fall any minute now.

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December 1, 2021
The Federal Reserve probably impacts more people's lives than almost any other federal agency in the U.S., and it is certainly a candidate for the least understood government agency--after all, monetary policy is a seriously rarified and abstruse discipline, as much an art as a science. When the Fed gets it right, the nation's economy flows smoothly; when they get it wrong, financial well-being is seriously impacted. Leonard posits that they have been getting things wrong for some years now, wreaking increasingly critical damage to the American economy. He follows the story of unlikely mavericks within the Fed's inner sanctum who are raising alarms about bad decisions and their consequences. While the subject matter is tough slogging for those without a background in higher economics, Leonard strives to present the issues clearly but without oversimplification, and the patient reader will gain a greater understanding of economic issues that are affecting everyone's lives.

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January 22, 2022

The Federal Reserve is the U.S. central banking system and is often referred to as "the lender of last resort," because it supplies money to banks. Through its monetary policies, the Federal Reserve directly controls interest rates. Business reporter Leonard's (The Meat Racket; Kochland) book offers insights from 1913 to the current day about the secret tricks and tactics that the Federal Reserve had at its disposal. For many years, the Federal Reserve maintained a policy of quantitative easing or maintaining an interest rate near zero, Leonard writes. During their time at the Federal Reserve, both Thomas Hoenig and Jerome Powell tried to discourage zero-interest-rate policies because these decisions had negative ramifications, Leonard argues, such as weakening the economy, and increasing income inequalities, asset bubbles, and risky investments. Moreover, once new money was introduced into the economy, there was no direct method to recall it. In Leonard's account, the Federal Reserve is viewed as a flawed mechanism for economic development. VERDICT Those seeking a better understanding of the Federal Reserve's inner workings or insights about creating their own economic forecasts will want to read this book.--Caroline Geck

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