The Realignment: Inside the Federal Reserve and Populism vs. the Free Market

Send us a tip! Episodes of the week, and Aaron's review of Lords of Money

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Welcome Back to The Realignment

Hey everyone, sorry this week’s newsletter’s coming out a day late. I (Marshall) went from Miami first thing in the morning to NYC to record next week’s episode, and then went home to Portland to record next Tuesday’s episode. TLDR, something had to give.

Hope you enjoyed this week’s episodes. If you’ve got any thoughts/ideas to add, be sure to reply below.

The Realignment on the Hidden Forces Podcast

Saagar and I had the opportunity to appear on the Hidden Forces podcast, hosted by Demetri Kofinas. HF is excellent and features many Realignment fan-favorite guests. Learn more about the podcast here.

Is America Undergoing a Narrative Reset or Realignment?

Demetri asked them both to come onto the podcast in order to help him better understand the forces driving dysfunction in American politics, along with phenomenon of rising public mistrust of institutions, and a deeping sense of paranoia in the body politic.

Saagar, Marshall, and Demetri spend the first hour of their conversation discussing how we got here, why the so-called “political experts” whose job it is to explain what’s happening have consistently failed to do so, what the new political consensus is that’s forming in American life, and what it is that the majority of Americans want—what in other words, would constitute a popular platform on which to not only run a successful campaign but from which to govern successfully or are these two things fundamentally incompatible in today’s celebrity-driven, fake it till you make it culture that seems to reward the aesthetics over power in place of power itself?

Next Week on The Realignment

The Racket Substack’s Jonatham M. Katz on his new book: Gangsters of Capitalism: Smedley Butler, the Marines, and the Making and Breaking of America’s Empire.

We’ve wanted to talk about Smedley Butler for awhile, ever since our episode on the war in Afghanistan. If you’ve heard of Smedley Butler before, it’s either because you served in the Marine Corps (he was the most decorated Marine in history, winning two Medal of Honors) or, you’ve read his pamphlet, War Is a Racket. Lots of listeners brought up his arguments, and frankly, we disagreed. That said, what makes this who great is our desire to engage with everyone’s arguments, so we cover that ground on Tuesday.

This Week’s Episodes

Episode 191: Glenn Hubbard: Walls vs. Bridges in a Disrupted America

(Audio) (Video)

Episode 190: Christopher Leonard: How the Federal Reserve Broke the American Economy

(Audio) (Video)

Christopher’s Books:
The Lords of Easy Money: How the Federal Reserve Broke the American Economy, Kochland: The Secret History of Koch Industries and Corporate Power in America, The Meat Racket: The Secret Takeover of America’s Food Business are all available at our Bookshop storefront.

Aaron’s Review and Summary

Each week, our producer/researcher Aaron Visser will summarize/review one of the books/shows covered.

Eight days of the year, a cabal meets to control the economy. While none are elected, each holds immeasurable power over the life of every American. But unlike theories about Jews or Masons, this conspiracy is absolutely real. In fact, its meetings are public record. As Congress has become more and more ineffective, the task of regulating the growth economy has fallen solely to the Federal Reserve. They hide their actions behind a smokescreen of jargon and economic theory. Monetary policy is boring. It doesn’t sell any newspapers and or get politicians elected. In The Lords of Easy Money, Christopher Leonard sets out to change that. While pure economic theory isn’t interesting, power is. The Fed’s power is only limited by its restraint, with the ability to conjure billions of dollars at will. Leonard’s goal isn’t to drag the Federal Reserve into the quagmire of hyper-partisan politics. He’s no Glenn Beck who points out that a trillion sure has a lot of zeros and predicts Weimar hyper-inflation is coming. He exposes the staggering changes in monetary policy over the last ten years, hidden in plain sight, and the massive changes they have wrought under the surface of our economy. Most Americans feel that the game is rigged, even if they express it in different ways. The Right attacks the Coastal Elite and the Left attacks wealth inequality. Leonard provides the language for both sides to articulate our two tiered system of economic policy, where the rich always come out on top.

Just as critics compared Squid Game to Parasite, The Lords of Easy Money will inevitably be compared to the works of Michael Lewis, most notably the Big Short. Like Lewis, Leonard uses his outsider perspective to tell economic stories aimed at the popular market about the ability of consensus to ignore reality. But the comparisons extend beyond the surface level. Leonard understands the ingredient that makes Lewis books so popular; they’re not about the economics, but the people, specifically the dissenters in their field, who make the economic decisions. This strategy helps for a few reasons. First, it provides us a vantage point into the text, rather than the dull external view of a textbook. Second, it easily builds credibility. It’s not a matter of outsider journalist versus expert, but expert versus consensus. I don’t have to trust Leonard the author to believe the critiques of Fed made by its own former members. And these critiques are massive. 

In 2010, the Federal Reserve began buying treasury bonds to combat the recession in a program known as Quantitative Easing. This marked a change in Fed policy and philosophy. They had always been a major participant in the US economy, modifying interest rates to fight inflation and unemployment. But now they positioned themselves as the main tool of government in stimulating the economy, adding trillions of dollars to the money supply. But despite their titanic effort, the unemployment rate fell by only a few fractions of a percent. The Fed doubled down and kept pumping money into banks, incentivizing them to invest in riskier places. Mysteriously, price inflation remained low, lower in fact than the targets set by the Fed. However, asset inflation, inflation of houses, stocks, and bonds, skyrocketed, as more money chased the same number of goods. After the most recent recession caused by Covid-19, the Fed engaged in unprecedented rounds of quantitative easing pumping trillions into the economy in months.

These programs dug the Fed into a hole. A new equilibrium arose around easy money, so that when the Fed started to tighten interest rates in 2019, the market crashed and the Fed had to bail out hedge funds. If the Feds learned a lesson from 2008, it’s that bailouts should come quicker. 

The Lords of Easy Money enraged me with t its detailed depiction of a system that provides bailouts for banks and not ordinary Americans. When Congress allocated stimulus money for normal Americans, it was hailed as “revolutionary,” with some comparing it to “socialism.” But almost all the pandemic spending went towards companies. The Federal government uses a money cannon with corporations and a t-shirt gun with normal Americans. Leonard uses monetary policy as the lens to view the modern American economy: rising corporate profit and corporate debt, stock buybacks and mass layoffs, CEO payouts and worker pay cuts.

This book isn’t prescriptive. It doesn’t solve the politics of moral hazard (in the short term the bailout always makes more economic sense) or how we should fight recessions in an age of legislative incompetence. But it is necessary. The problems in our economy are vast and many can be traced back to the Fed. For all Americans care about the economy, we barely understand it. We must see past the jargon and see the conspiracy in broad daylight.

The Realignment Bookshop

As a reminder, we’ve created a Realignment Bookshop affiliate store showcasing books by guests, what we’re actively reading this year, and deeper dives into the featured topic of an episode.

If you purchase a book using our link, the show gets a 10% commission, a local, independent bookseller gets support, and you get an awesome book!

We’re reorganizing our book lists over the next few weeks, so for now, check out our primary one:

Books by Realignment Guests

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