THE LORDS OF EASY MONEY

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.