This books gives an insider perspective at how the Fed (and the FOMC) work.
There were things I vaguely knew about, others I didn’t know at all, so it was a great learning/refreshing experience
Creating money out of thin air
An operator punches some keys into a terminal and billions of dollars show up in the balance of some privileged bank
That’s also the reason the US has such a huge deficit in its balance sheet 🤣
The New Deal
I didn’t know it was then, back in the 30’s, when the US government split banks into commercial (loans, deposits to customers) vs investment banks (way more risky enterprises)
Negative Credit
I now know that quantitative easing is akin to negative credit, the Fed buys instruments from banks, essentially a nominal negative rate operation
European authorities also did this, the idea behind it is force institutions to take their money and invest it somewhere other than a bank deposit safe haven, thus (supposedly) spurring economic growth
Too Big To Fail
I thought the term was born with the 2008 crisis, nothing further from the truth, in the 80s, there were already institutions with enough ramifications, that if they failed the economy was at risk
Some lessons though
Despite the scores of PH.D in economics, Fed personnel (including FOMC members) are none the wiser about the consequences of their monetary regulations, they expect X, only it’s Y what ends up happening.
It struck home the depiction of a Fed analyst that presented a forecast of what the economy situation would be after a proposed regulation: the book shows how the guy excused himself saying assumptions can vary, take it with a grain of salt, etc.
It struck home because I used to create P&L projections for the next 3, 5 years, which almost invariably never came true: assumptions varied, macro events changed the landscape, almost like the butterfly batting its wings causing a hurricane on the other side of the world
Whoever devised forecasts as a formal method of doing business, deserves a special place in …
Finally, history just runs in circles, sometimes smaller, sometimes bigger, but things just keep repeating
Excerpt
“The long crash of 2008 had evolved into the long crash of 2020. The bills had yet to be paid.”