Interview: Christopher Leonard, Author of “The Lords of Easy Money” The Fed has “wrenched this gap between the very rich and everybody else, which is the defining economic dysfunction of our time.” Matt Taibbi
https://taibbi.substack.com/p/interview-christopher-leonard-author
There’s an illuminating scene in Christopher Leonard’s The Lords of Easy Money that talks about the difficulty of trying to communicate the intricacies of Fed policy to mass audiences. Fox News host Glenn Beck, a trusted voice of the Tea Party movement and therefore someone who would have been expected to take an interest in the Fed’s plans for a massive intervention in the economy via the quantitative easing program, took on the subject in a free-flowing broadcast. Leonard describes what ensued:
Beck scrawled a long numeral on a chalkboard: 600,000,000,000. This represented the value of bonds the Fed just announced it would buy. “This is what they call quantitative easing,” Beck said. Then he walked to a new chalkboard with a confusing flowchart written across it that included a series of large, cartoonish arrows that seemed to signify the flow of money, or influence, or something like that, behind the Fed’s new program. Confusingly, the whole thing began with organized labor, depicted by a union boss wearing a bowler’s cap and with a cigar dangling from his mouth. It got weirder and increasingly inaccurate from there. The final cartoon on the flowchart showed a group of top-hat-wearing bankers…
Leonard described Beck’s understanding of the Fed as “like that of a very high drug user who had sat in a motel room, trying to eavesdrop through the wall while people talked about central banking.” I remember the broadcast – though I wasn’t a fan of Beck’s and occasionally wondered if his chalkboard theories about Obama as both Hitler and Stalin were really a brilliant parody I was too thick to grasp, I thought he was at least trying to say something critical about a truly dangerous Fed policy.
As Leonard notes, Beck got one important thing right, that the flood of cheap money punished ordinary savers, but the rest his presentation was so far-out, and over-focused on the idea that QE risked Weimar-style hyperinflation, that his audience probably ended up with a net minus from a knowledge perspective.
This was too bad, because the media treatments on the other, more “respectable” side, at 60 Minutes, CNBC, CNN, and the like, were either completely credulous in repeating the assertions of Fed officials that its policies were needed to “jumpstart the sluggish economy” or, if they were critical at all, focused only on the narrow question of price inflation. The much more serious question of the impact of Fed policies on asset prices simply didn’t fit well in our increasingly bifurcated media landscape, which didn’t know whether to identify the concerns of a figure like Leonard’s main character Thomas Hoenig as conservative or liberal complaints. In fact, Hoenig’s worries were about inherent institutional weaknesses that concerned both left and right demographics, making his story a tough sell to either media “side.” In this sense, a book like The Lords of Easy Money is a gift to media audiences that rarely get a clear look at a confounding topic.
I asked Leonard about the history of the project, the response to it, whether his thesis is more or less relevant today, and other questions. Edited for length, his thoughtful responses:
Matt Taibbi: How did you come on to this subject?
Chris Leonard: I was reporting my previous book about Koch Industries, Kochland, and I met some really bright financial trader type people in the reporting of that. One of these guys in 2016 just started going off on what the Federal Reserve was doing to asset prices through quantitative easing.
I hate to use the cliché term red pill or whatever, but I did not understand how the Fed affected monetary policy. I did not understand what quantitative easing was, I did not understand how it affected markets. I’d heard about this stuff in the background, but when he described it to me in a mechanical way, I became totally obsessed with quantitative easing and came home and started reading about it. And there wasn’t much really deep throat journalism, in my opinion, about QE back at that time. One of the first things I read was that the vote to do QE2 in 2010 was the vote of 11 against one, and the one was Tom Hoenig. I had heard the name and obviously, I had the Kansas City connection. It turns out he lives three blocks from where my mother lived.
But I had never met the guy. I didn’t know a thing about him. And I just thought, “Oh, that’s interesting.” And it was one of those things where the more I pulled the thread, really, the more interesting it became in terms of Tom. He wasn’t that central of a figure at the beginning, but then when I actually started going through and reading his internal arguments, and reading what he was warning about, that’s when I started to become fascinated with him.
Matt Taibbi: How did you connect with him? He obviously gave you incredible access, not just to the history of what he had done, but to his private thoughts. There are not many Fed officials who’ve been so open.
Chris Leonard: It was pretty interesting to me. Again, in 2016 I started to become urgently fascinated with this stuff and I was still doing the Koch book, but I started reporting on this alongside it. And I emailed Tom Hoenig, who at that time was vice chairman of the FDIC.
I went through the public relations team at FDIC and said, “Look, I want to interview this guy about quantitative easing and his vote against it. I know that he’s not involved with the Fed anymore, but I’d love to get his perspective on it.” And he agreed to do the interview and I went and interviewed him at the FDIC headquarters that summer with the PR team sitting there.
I’ve really come to respect this guy and I just can’t hide that. I sincerely feel that he has this old school sense of things, this old school probity. And I really do think he felt like it was his obligation to handle questions from reporters on this, and they had an obligation to talk about his votes at the FOMC and to talk about these issues. And so, that’s why he did that first interview, and it was pretty fascinating.
Matt Taibbi: There must have been subsequent interviews from there.
Chris Leonard: So, we do that first interview. I’m still researching this stuff, but I’m doing it on the side. And on a Saturday morning, I read this interview that he gave to The Wall Street Journal in 2010, when they were voting on 0% interest rates, and it was the weekend interview in the Journal, I forget the name of the author who interviewed him – Mary something [Mary Anastasia O’Grady] – and as I say in the book, this guy had been remembered as this hardcore inflation hawk, and this Mellonist, this hard money guy.
But in this Wall Street Journal interview, he was talking entirely about asset bubbles and about wealth inequality, and about the fact that a 0% interest rate was really going to just juice the banking industry and create more asset bubbles. I called him at his home, it was 8:30 AM on a Saturday and I essentially said, “You were not talking about inflation. You were talking about asset bubbles.”
And he’s like, “Yeah, I know that’s what I was saying.” So, we started having these phone calls like that, and then I interviewed him a second time at the FDIC, and this would’ve been later 2016, I think. And it was after that interview where I was like, “This is the book,” because this guy to me represented this political tradition in American life that is dead now, the Eisenhower conservative. The old school conservative who believes in a market, but a market ruled by rules that restrains the worst impulses of capitalism.
He was trying to ride that uneasy line and the messy compromise that used to define our economic system, but now is totally dead. I really wanted to write about him, the way he came to this view, and the struggle he’d had, which to me was an ironic struggle in that he was a conservative, but he was a conservative who wanted to break up the big banks.
And his voice was totally ignored and marginalized. He made some small gains in terms of controlling the big banks, but in any case, I thought, “This really makes it a book in my mind that I can write about this guy, I can write about his fight, his losing fight, and also explain quantitative easing to people.”
Matt Taibbi: Did you see him as a canary in the coal mine for this phenomenon of conservatives now being viewed as liberals and vice versa? Because what he was really talking about was something that traditionally we would’ve thought of as a concern of the left, a populist, anti-elitist message about preventing over-concentration of influence and money. Yet as you say, he was politically a conservative at the time. Was he one of the first people that we thought of that way?
Chris Leonard: Emphatically yes. I think we could debate was he first or not, but certainly, he illuminates this strange political age we live in because, again, he was a conservative arguing policies that were once liberal New Deal policies, like breaking up the concentration of power, putting Wall Street on the tight leash, and breaking up monopolistic power in banking and in other parts of the economy. I mean, this was the pillar of the New Deal order, which was identified as liberal. But of course, now everything is so mixed up and upside down, it doesn’t even make sense anymore. So yes, I think he’s completely a canary in the coal mine for that story.
Matt Taibbi: There was a phrase that he used, “allocative effect,” or “allocative policy,” which seemed to me radical for a Fed official. For him to push the idea that the Fed has a hand in determining winners and losers in the economy seemed to violate an unspoken Fed taboo. That was something the general public didn’t think a lot about back then. Do you think they think a lot about it more now?
Chris Leonard: It’s still something that people don’t think about when it comes to the Fed. Hoenig’s phrase was the misallocation of resources, but to back up, it’s this idea that the Fed and what they do, they set policy and it creates winners and losers and it has distributional effects. And as you know, from the story, they are doing quantitative easing, and a 0% interest rate massively benefits the richest of the rich. It is hyper-trickle-down economics, it’s the idea that we will stoke the stock market and the corporate bond markets, asset prices in other words, with the hope that it creates a so-called wealth effect that makes people feel more confident to go out and spend more money.
But the 1% of Americans who own 40% of all the assets just get tremendous gains before that first job is created for the middle class. And so these policies dramatically widen wealth inequality, they’ve just wrenched this gap between the very rich and everybody else, which is the defining economic dysfunction of our time.
To get back to your point, nobody thinks about that when they think about the Fed, because the Fed presents everything it does in this really clinical, hyper-technical language that obscures what they’re doing and obscures this facet of it. Part of that is from how dysfunctional the media conversation around this stuff is, and that’s what I was trying to get across in that scene with the Glenn Beck monologue.
Matt Taibbi: Where he got one or two or three things right, and about 48 things wrong?
Chris Leonard: Totally, and fundamentally misled the conversation because it became all about Zimbabwe-style hyperinflation. And so, when we never saw price inflation, everybody was like, “Oh, well the critics were wrong,” and “Oh, the critics were all super hardcore, right-wing gold bugs.” And I really felt also, the bulk of coverage of quantitative easing was just to not cover it. It was just to not write about it because it’s boring, there aren’t any interesting people involved, it’s kind of complicated. Again, there’s no good personal fight. You don’t have Trump getting up and just saying outrageous, crazy things, which makes really easy copy. And so, most of the coverage was just non-coverage and it left the space open to idealogues who used it as their little hobby horse for a night or two, and then moved on.
Matt Taibbi: I wanted to ask about the timing of the book too, because just as you must have been finishing up on it, the COVID disaster happens and there’s the gigantic bond buying program that ends up adding $4.6 trillion to the balance sheet. It seems like the thesis of your book is more relevant than ever. What were your thoughts as all of that was unfolding?
Chris Leonard: With total honesty, when Kochland came out, I had more time and I started really working on this more. And then, I was actually working on a story about the repo bailout, which is chapter 13, “The invisible bailout,” and it was the stock market and treasury market crash of 2020 that really just accelerated everything. I thought, “I need to write this book right now.” So, I really started putting the book together. I’ve been gathering string on it for a long time, but it became the book in May 2020 during all of that. It was a huge impetus for writing it at this time. And it was becoming undeniable that the Fed’s interventions, these super unprecedented, really radical interventions, were driving the train.
And you could just see that so much with the extraordinary bailouts that they did in 2020, just breathtaking, impossible to describe without sounding hyperbolic. I mean, printing, what was it, 300 years’ worth of money in a few months in the spring of 2020? Juicing the stock market, the Dow gains 40% in a couple months during the summer 2020. And even during this time, you still had people disputing that the Fed was boosting stock prices, but those voices were becoming increasingly detached from reality. So, you just couldn’t make this argument anymore that the Fed wasn’t really distorting our economic system and driving our economic system at this time. And I really do feel this was becoming a center of the plate political story for that reason. In my mind, it’s just one of the key factors driving everything, which is why I wanted to write this book. You know what it’s like when you envision a book for the first time?
With this one, I wanted a relatively fast thin book that a business traveler could pick up and read at hotel at night when they’re tired, but walk away from it understanding quantitative easing and what the Fed has done and what that means for our economy. In other words, “Why is it such a big deal that the Fed is talking about hiking rates right now? Why is that going to matter to everybody?” That’s kind of how all the timing comes together, if that makes sense.
Matt Taibbi: Do you think these recent 75 basis-point interest rate hikes coming in rapid succession fits the pattern Hoenig described in the book of the Fed slamming on the brakes too fast after long periods of easy money?
Chris Leonard: One hundred percent. It fits that pattern perfectly and it’s really tragic, and it’s the Fed’s fault. And one of the biggest contours of this is, it’s not just what the Fed is doing right now today at this meeting, it’s what’s been going on for the last 10 years. You’d look at the arguments that Jay Powell was making, the current Fed chairman in 2012, 2013, 2014. He was planning out that if the Fed didn’t restrain itself, if it didn’t stop trying to juice the market so much, if it would just raise interest rates a little bit, it would give itself more room to maneuver when trouble inevitably arose, when the rainy day eventually came, when there was economic slowdown or when there was inflation. But, he was ignored at that time. And then, as you know, he changed his tune and shifted over to the easy money theory.
And that’s led to where we are today, where the Fed has kept interest rates at zero for basically a decade, except for that brief period, when they tried to raise rates and they got up to about 2.5% back in 2018, 2019. But the Fed has given itself zero room to maneuver, they’ve had the pedal to the metal since 2008, with interest rates at zero, pumping trillions of dollars into the banking system via quantitative easing, which leads us to where we are today. Now, even moderate rate hikes can end up being absolutely catastrophic because so much of the market has been built around a zero-interest rate world. They’ve been juicing this thing for 10 years, so when they start raising rates that it’s like the edifice of high asset prices and debt on the other side is just that much larger.
In my mind that really did play a big role in 2021 when they saw inflation rising, where there was a good case to be made that, “Oh, this is transitory. This is COVID,” but there was also this reality that was like, “We better pray to God this is transitory,” because we have a $9 trillion balance sheet and 0% interest rates, and if we have to hike rates quickly, it’s going to be carnage. So let’s kind of keep things on an even keel, and hope that this inflation goes away. And unfortunately, for all of us, inflation didn’t go away. Now, they’re in this position where they feel – I think with some justification – they feel they have to hike rates and they have to tighten, otherwise inflation is going to become embedded and spin out of control and become very difficult to stop.
To get back to your question, yes, this is exactly what Hoenig was talking about. They’ve left themselves no wiggle room because back in the 2010s, they showed zero restraint, and they were charging it on a credit card basically, which is my analogy. And now the bill is coming due, and they have to slam on the brakes, and it’s going to make a super rocky transition.
Matt Taibbi: What’s been the reaction to you personally from this book? I’m wondering about the response and whether you’ve taken political criticism for even writing about this, in the same way Hoenig took criticism.
Chris Leonard: The rollout has been really interesting. I have not faced much personal heat at all, it’s been kind of interesting. The right wing really attached to this book. They have a built-in cynicism toward the Fed, but there’s a passage at the end that describes January 6th as an insurrection that endangered our democracy, and people got really angry about that, which was interesting to me. Apart from that – I’m really trying to figure out how to put this without getting myself into trouble. The way I’d put it is, I was disappointed in the lack of engagement with this book in certain circles, like among respectable finance reporters. I don’t know, man. Listen, the book does go against the grain.
Matt Taibbi: I certainly got recommendations from people all across the spectrum for this book. So, clearly lots of people of different political orientations are reading it. But the response among mainstream conventional wisdom seems curious.
Chris Leonard: If this book had come out in 2019, the conventional wisdom folks would’ve said it was just batty, and just recycling right-wing talking points. That’s an incredibly difficult argument to make right now. The legacy of QE is becoming more and more apparent every single day. It was a disastrous policy. We’re going to be paying the price for a long time. Ben Bernanke, he led the Fed down a really risky path and he portrayed it as just a PhD economist solving a set of math problems. As in, “Nothing to see here, we know what we’re doing.” That legacy is falling apart.
So, I think the book makes a lot more sense today, or rather I think it’s more difficult to argue with, than it would’ve been in 2018 or 2019.
Matt Taibbi: All right, thanks so much again, and congratulations on the book.
Chris Leonard: Thank you very much.
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