How Much Power Does the Federal Reserve Have?

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Given the coincidence, it is tempting to ask, are these two developments related? Is the rise of the Fed a symptom or perhaps even a contributing cause in America’s national crisis? In his latest book, the journalist Christopher Leonard wants to persuade us that it is both.

Leonard is the author of several works in the muckraking genre. Previous titles include “Kochland” and “The Meat Racket.” In “The Lords of Easy Money,” he explains how the central banking elite have pursued a Janus-faced policy. They have vanquished the forces of inflation conventionally understood, while unleashing a flywheel of financial speculation that benefits the top 10 percent, who own 84 percent of American equities, and most particularly the top 1 percent, who control 38 percent. Leonard doesn’t have much time for formal economics. He plays fast and loose with terminology and economic logic. But we get his point and it is a good one. This has been an era of loose money and the benefits have been very unevenly distributed.

Rather than economics, Leonard’s preferred idioms are the standard story lines and characters of American populism. “The Lords of Easy Money” spins a tale of innocence betrayed that reads like an update of “The Wizard of Oz.” To encapsulate the history of the Fed in the last 50 years, Leonard follows the career of Thomas M. Hoenig, the son of an Iowa plumber who rose inside the ranks of the Kansas City Fed. Through Hoenig’s eyes we see the interest rate shock of 1979 and the go-go years under Alan Greenspan. As Leonard tells it, Hoenig acquired a deep appreciation of the risks that excessive credit expansion posed in dealing with bankrupt community banks and overextended oil loans. From 1991 to 2011 as president of the Kansas City Fed, Hoenig had a ringside seat from which to witness the dot-com boom and bust and the housing boom that followed. When crisis struck in 2008, Hoenig supported the first round of emergency measures to stave off disaster. But when Ben S. Bernanke, the chair of the Federal Reserve, attempted in 2010 to launch a new round of stimulus, Hoenig reached a defining moment. Again and again, he voted no, eight times all told in 2010. It was a breach of Fed solidarity, but Hoenig’s common sense and banking experience told him that more stimulus would simply flow into asset prices. By contrast, as Leonard tells it, Bernanke’s unprincipled experimentation, in which he was vigorously supported by his fellow professor and successor at the Fed, Janet Yellen, stoked the flames of speculation.

To complete his populist triptych, alongside Hoenig and the irresponsible wonks, Leonard adds Jerome H. Powell, the current chair. In contrast to Hoenig, Powell is the slick upper-class operator. Rather than an example of hard graft, Powell’s is the effortless success story of a man without qualities. As Powell climbed gracefully up the greasy pole, Hoenig found himself sidelined.

The office politics of the Fed are well captured by Leonard, as is the intimidating physical setting. The fact that Hoenig is of German extraction and had a picture commemorating the Weimar hyperinflation in his office is a striking detail. Striking too is Leonard’s sleuthing into Powell’s time at the Carlyle Group and his role as a corporate raider, wreaking havoc with stalwarts of American manufacturing and their work forces.

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