Christopher Leonard’s “The Lords Of Easy Money: How the Federal Reserve Broke the American Economy” delves deep into the controversial monetary policies of the Federal Reserve and their unintended consequences. A significant portion of the book aims to vindicate the warnings of former Kansas City Fed President Thomas Hoenig. Hoenig consistently cautioned against the dangers of easy money policies, fearing inflationary pressures. Leonard argues that while the anticipated consumer price inflation didn’t immediately materialize as predicted, inflation did occur, albeit in a different and more insidious form.
The real inflation, according to Leonard, manifested in asset prices. Over the past decade, fueled by the Fed’s easy money stance, the stock market experienced a boom, even as the broader economy struggled to gain significant traction. This environment incentivized financial institutions like hedge funds, banks, and private equity firms to engage in increasingly risky and complex debt instruments. This influx of capital contributed to speculative bubbles while simultaneously limiting the Federal Reserve’s ability to effectively respond to future economic downturns. Leonard contends that this asset speculation disproportionately benefited the wealthy, exacerbating economic inequality as job security for many became increasingly precarious.
To illustrate the real-world impact of this financialization, Leonard introduces John Feltner. In 2013, Feltner secured a union job at Rexnord, an industrial equipment manufacturer. However, just a few years later, Rexnord decided to relocate its Indianapolis plant to Mexico. Leonard strategically uses Rexnord’s story to highlight several key points. Firstly, starting in the 1980s, private equity firms loaded Rexnord with debt, transforming the company’s primary objective into debt servicing. Secondly, one of the private equity firms involved in acquiring Rexnord in the early 2000s was the Carlyle Group, where Jerome Powell, the current Chair of the Federal Reserve, was a partner at the time. It’s noteworthy that Donald Trump, whose populist rhetoric resonated with frustrated workers like Feltner, appointed Powell as Fed Chair in 2018.
Leonard’s narrative effectively underscores how extreme financialization has reshaped both the economy and political landscape. While Powell’s direct connection to Rexnord predates Feltner’s employment and the plant’s relocation, the anecdote serves as a powerful symbol. Powell, recently signaling a readiness to raise interest rates to combat persistent inflation, is portrayed as an adaptable figure embodying the complexities of the financial system. He is contrasted with Hoenig, depicted as a principled but ultimately marginalized voice of caution against the lords of easy money. Leonard critiques the Washington establishment’s embrace of Powell, while also distancing himself from unfounded conspiracy theories. He expresses concern that criticisms of the Fed’s easy money policies have been largely relegated to the fringes of political discourse. Leonard meticulously presents Hoenig’s hawkish stance as sound, common-sense economics, rooted in “prudence and integrity,” offering a compelling critique of the current financial order.
