Identifying The Fed’s Central Role in the Current Blowout is Not Sufficient
A review of “The Lords of Easy Money: How the Federal Reserve Broke the American Economy,” by Christopher Leonard, Simon & Schuster, 2022
This is a review which presents high praise and a serious warning side-by-side. The praise is sincere. On the one hand Christopher Leonard has performed a commendable public service in lifting the rock and exposing the inner workings and debates of the leadership of the Federal Reserve during the years 2001 to 2021. I know of no other work that has done this. Other books, such as David Stockman’s The Great Deformation: The Corruption of Capitalism in America (2013) and Nicholas Shaxson’s The Finance Curse (2019), are also noteworthy efforts, but The Lords of Easy Money is breathtaking in its portrayal of the absolutely criminal decision-making that has characterized the Fed’s higher-ups over the last 20 years. For doing this I say, “Bravo Mr. Leonard!”
But the warning is also mandatory. For all of the extraordinary reporting that makes up The Lords of Easy Money, I can’t help but come away with the troubling impression that this is the work of a slightly bewildered forensic pathologist, who correctly identifies every malady, infection, injury, and organ failure in his subject corpse, but cannot pinpoint the cause of death.
The key problem here is that Leonard grounds his analysis firmly within the confines of what he calls the “modern financial system.” He never considers the question that perhaps it is the “modern financial system” itself which is the fatal disease. We shall return to this paradox at the conclusion of this review, but we begin with what is praiseworthy and absolutely explosive about Leonard’s findings. If anyone you know is doubting why the unconstitutional Federal Reserve must be abolished and replaced by a Third National Bank dedicated to rebuilding and reindustrializing the United States, Leonard’s expose provides all the initial ammunition you need.
Steering the Titanic into the Iceberg
The book shines in its sweeping narrative of the inner workings and decision-making of the Federal Reserve—particularly the Federal Reserve Open Market Committee (FOMC) from 2001 through 2021. Mr. Leonard covers the tenures of four Federal Reserve Chairmen: Alan Greenspan, Ben Bernanke, Janet Yellen and Jay Powell, and the reader comes away from this story with the distinct impression that the lunatics have consistently run this very protected asylum.
The Lords is a 384 page book, crammed with detail, so no brief review could even begin to present a fraction of what Leonard covers. He starts in the 1980s, but the heart of his story begins with the financial meltdown of 2008 and the announcement in 2010 by Fed Chairman Bernanke of a new policy of what became known as “quantitative easing” (QE). Essentially the bulk of the book is the ten-year chronology—from 2010 to 2020—of how Bernanke and his successors launched a power grab by the Fed over every aspect of banking and even corporate life, and in the process massively transformed the U.S. economy in the direction of purely rentier speculative profit and usury. It is that transformation, accompanied by similar policies at the world’s other central banks, which is primarily responsible for the hyperinflationary blowout Americans are experiencing now—a blowout aided and abetted by the Biden Administration together with the longer term collapse of any real production of physical goods.
To tell a little of the story: Between 1913 and 2008, the Federal Reserve increased the money supply from about $5 billion to $847 billion. Then, in a period of little more than one year, from late 2008 to early 2010, the Fed printed $1.2 trillion in new currency—one and one-half times the amount it printed in the preceding 95 years. All of this cash was then made available at zero percent interest to a select group of “primary dealers” among the largest Wall Street financial institutions and foreign banks.
But this was only the beginning. After some ups and downs, the Fed unleashed an even more extreme form of “quantitative easing” in 2019. In 2019 and 2020 the amount of money that the Fed pumped into the financial system dwarfed what had been done in 2008. In March 2020, alone, the Fed added $1.5 trillion in new money. Massive financial speculation was the result.
Unfortunately, recapitulating these successive astronomical bailouts merely in terms of additions to the money supply, appears to give credence to a simpleton’s “quantity theory of money,” and would massively understate the damage they have done. Why do the “primary dealers,” and all the other bloodsuckers down the line, want this money? Simply in order to leverage it into successively larger pyramids of financial aggregates (such as derivatives), governed by a succession of “reserve ratios.” Each such pyramid demands its percentage, from, ultimately, a shrinking real economy of factories, mines, farms, and the like. There’s your inflation! It does not result from the money supply as such, but from the leveraging of currency into an ever-growing aggregation of ever-bigger leeches. The Rexnord study referenced below exemplifies the process—albeit in a limited way.
Unlike 2008, the 2019-2020 bailout was not accompanied by Congressional hearings and public outrage. In fact, most people are not even aware of it. Leonard documents how it was engineered by two men, Fed Chair Jerome Powell and Treasury Secretary Steve Mnuchin, operating almost completely out of public view, and circumventing all the alleged “protections” of Dodd-Frank. It was rubber-stamped by Congress.
Beginning in 2008 and escalating in 2019-2020, the Fed greatly expanded its power—moving into areas, such as the buying and selling of corporate debt, that would have been previously unthinkable. The Fed oversaw, and to a large extent directed, a complete transformation of the U.S. economic system to one based on outright usury and financial greed. Corporations are no longer valued for what they produce, but for the amount of speculative profit they can generate. In fact a new term has been invented—“zombie company”—which describes a firm that carries so much debt that its profits aren’t enough to cover its loan costs. These companies are allowed to continue to operate solely for the purpose of allowing financial speculators to make millions by perpetually refinancing the company’s debt. Many of these aren’t small or marginal operations, but include well-known firms like Boeing, ExxonMobil, Macy's, and Delta Airlines.
What Leonard describes is a Federal Reserve-dominated banking-financial system, which now almost exclusively serves the interests of the hedge funds, private equity firms, investment banks, and other creatures who inhabit what is called the largely unregulated “shadow banking” system. This is not a “modern financial system,” albeit one that has been corrupted. This is a system based entirely on thievery, gambling, the destruction of the productive economy, and the impoverishment of the population.
A Revealing Case Study
One excellent sub-plot of Leonard’s book is the section dealing with the Rexnord Corporation and one of its employees, John Feltner. Originally founded in 1892 as the Chain Belt Company, Rexnord is a company which manufactures high-precision equipment, like specialty ball bearings, that are used in heavy industry. It was a productive American company. Leonard describes how Rexnord was purchased in the 1990s by a “corporate raider” using junk bond debt. The company was sold over and over again over the next 20 years, with each sale piling on more debt. Parts of the company were split off and sold. Wages were reduced. Credit Suisse, the Carlyle Group, and other private equity firms were involved in this. Management of the company was taken out of the hands of those with a background in manufacturing and turned over to individuals with university degrees in finance.
By 2008, the company was viewed entirely as a “financial asset,” and was no longer valued for what it produced. The real value—and the profits—no longer resided in the company itself, but rather in its debt, which could be bought, sold, rolled over, bundled, and speculated on forever. This is the new financial world that the Fed has created where the debt is the asset. By 2015, Rexnord was swamped in debt and managing that debt became the top priority for company executives. In 2017, Rexnord closed all its U.S. plants and moved its operations to Mexico, where it pays its workers $3.00 per hour.
As for the Rexnord employee, John Feltner, prior to 2008 he was employed as a skilled machinist by the auto parts maker Navistar, where he earned $80,000 a year. After Navistar closed, Feltner obtained a position at Rexnord, where he earned about $60,000. When Rexnord shut down in 2017, Feltner moved on to a job at a local hospital, where he is paid $46,000 per year. His yearly income has been slashed 43 percent, and at each new job his benefits and health care were scaled back. Feltner’s fate has been shared by millions of skilled workers across the nation under the post-2008 Federal Reserve regime.
If there is a hero in The Lords of Easy Money, it is Thomas Hoenig, and Leonard spends most of the beginning of the book discussing him. Hoenig, the President of the Federal Reserve Bank of Kansas City from 1991 to 2011, was a member of the Federal Reserve’s Open Market Committee (FOMC) during the 2008 financial meltdown. Between 2008 and 2011, he had the singular distinction of opposing Ben Bernanke’s new financial regime (as opposed to Janet Yellen who enthusiastically backed Bernanke). In many of the votes at the FOMC, including the continuing bailouts, money-printing, zero interest rate policy (ZIRP), and quantitative easing, the vote was 11 to 1—with Hoenig standing alone. As Leonard documents, Hoenig argued that the bailouts and quantitative easing were concentrating wealth in the hands of the wealthy, resulting in the vast income disparity in the U.S. today and the wipeout of the middle class.
From what he says of Hoenig, and from Leonard’s interviews him, it is clear Leonard has a great deal of respect for him. I was disappointed that Leonard did not explore in depth the proposals that Hoenig has put forward to fix the banking system. Leonard does devote a few paragraphs to Hoenig’s plan to “break up the big banks,” but in 2009 Hoenig had authored a paper “Too Big Has Failed” wherein he explicitly named Jesse Jones and the Roosevelt-era Reconstruction Finance Corporation (RFC) as the model for what should be done in 2009—including very specific proposals to reorganize bankrupt financial institutions and to write off speculative debt.
In his focus on the Fed’s operations within the confines of what he calls the modern financial system, Leonard fails to recognize that the underlying axioms of that financial system are fatally flawed. For example, he describes the insane and avaricious activities of the hedge funds, but he never asks the question of whether hedge funds or private equity firms should even be allowed to exist. He fails to give adequate attention to the ticking time bomb composed of $234 trillion in worthless financial derivatives sitting in the center of this modern “system.” In a book which dissects the ins-and-outs of financial speculation, he mentions Franklin Roosevelt’s Glass-Steagall Act only once—and then just in passing. Yet, Glass-Steagall would have prevented the financial practices which led to the 2007-2008 and continuing crash. An accompanying policy to reindustrialize the country based on intentionally continuing scientific and technological progress and intentionally growing a prosperous population (the axiomatic assumption behind Jesse Jones and the RFC) would have prevented the human tragedy we now face.
In 1971, following Richard Nixon’s abandonment of the gold-reserve system and the adoption of floating exchange rates, Lyndon LaRouche warned that these actions had set us on a trajectory of escalating financial speculation, economic ruin, and war. History has vindicated LaRouche’s forecasts. So, despite the impression one gets from The Lords of Easy Money or current generational memory, our problems did not begin in 2008.
Perhaps the most critical problem in Leonard’s analysis is the failure to understand the difference between the Anglo-Dutch predatory system of Central Banking and the American System of National Banking. In oligarchical Central Banking, money is primary. In Hamiltonian National Banking, production, increases in physical productivity, and scientific advancement are primary. As Hamilton states in his Report on a National Bank:
“The intrinsic wealth of a nation is to be measured, not by the abundance of the precious metals, contained in it, but by the quantity of the productions of its labor and industry,” and “The tendency of the national bank is to increase public and private credit. Industry is increased, commodities are multiplied, agriculture and manufactures flourish, and herein consist the true wealth and prosperity of the state.”
Central Banking—what Leonard calls the “modern financial system”—is based on usury. Hamilton’s system is based on “promoting the arts, agriculture, manufactures, and commerce.” Abraham Lincoln demonstrated how a regulated national banking system could be harnessed to act as a catalyst for explosive development of the productive economy and the advancement of the condition of life of the people.
Mr. Leonard has accurately portrayed how the Federal Reserve has destroyed the value of our currency, and brought about a staggering transfer of wealth to the top one percent—and that makes this book an essential read as we campaign to abolish the Fed and to launch a Third National Bank of the United States. But, he fails to adequately grasp the pure evil of the intention that has guided this. The minds of Bernanke, Yellen, and the others are perhaps best understood by a viewing of Fritz Lang’s 1922 film Dr. Mabuse the Gambler.
The only way out of this crisis is radical surgery. America has had two successful Economic Revolutions: the first under Alexander Hamilton, and the second under Abraham Lincoln. These were grounded in the principle of national sovereignty over economic, financial, and monetary policy, and they were implemented with an ironclad intention to develop the productive powers of the nation’s people, and to advance their well-being, The fostering of the widespread and false belief in a post-industrial and consumer society based on usury, unencumbered financial speculation, and the mantra that “money” is wealth, along with the continuing delegation of our financial lives to the private Federal Reserve, is why Jerome Powell, Steve Mnuchin, and others, are not in jail for implementing yet another bailout of their “modern financial system” on the backs of the American people. It is well past time to return to the outlook of Hamilton, Lincoln, and Lyndon LaRouche.