The Folly of the Fed: Why Central Banks are Tanking the Economy
Well, the maniacs did it…
The Fed just hiked interest rates by 0.75%, the most since 1994. And the Fed isn’t the only central bank aggressively hiking rates to combat inflation: the Bank of England just hiked rates for the fifth time in a row.
Now, most of you reading this are going:
“So what?”
“Why does this matter now?”
“How does this affect me?”
Well, instead of doing what I normally do – trying to break complex things down into simple, useful explanations with a few dashes of snark and cynical pragmatism thrown in (if you want some of that, click here)…
I’d like to present to you something more fun…
The Folly of the Fed
A One-act Play by Sean “Finance ‘I Can Finally Use My Fine Art Degree!’ Daddy” MacIntyre That Breaks Down How We Got Here and Why Things Are Happening in the Way We’re Seeing
The Cast:
Banks - Institutions that provide financial services, including lending, banking, investing, and insurance.
Corporations - Companies that make and sell stuff.
The Fed - The U.S. Federal Reserve Bank, which is a combination of 12 regional banks and is supposed to be in charge of doing 3 things: maximizing employment, stabilizing prices, and moderating long-term interest rates.
The People - You, me, and everyone we know getting ratf***ed by forces entirely outside of our control.
America, 2008
[Banks: Enters]
Banks: Yo, so... we fudged up. We couldn't make money with stocks and crazy tech IPOs anymore, so we gave a bunch of people mortgages even though they couldn’t afford it. Now we're leveraged to the teeth and we need to, like, just stop, I guess, uh, just stop. Everything.
[Corporations: Enters]
Corporations: Dude, we’re hemorrhaging cash. Nobody’s buying anything. Can we get a loan to stay afloat?
Banks: [Turns pockets inside out.] Sorry broski, fresh out of cheddar.
Corporations: Ah nuts.
*Global credit crunch ensures, whole nations put at risk, no investment is taking place which means no jobs are being created, everyone tightens their belts by firing staff and cutting operations*
[The Fed: Enters]
The Fed: Yo, the heck's going on?
Banks: Nothin’.
Corporations: Nothing.
The Fed: Nothing? Nothing is a problem. We need you two to be doing more than nothing for the economy to work. You need to, I don’t know, do SOME things.
Banks: Oh man. [Long pause.] Tough break.
Corporations: Yeah. That sucks.
The Fed: So… Will you do greater than no things now?
Banks: Nah, we're... we're like good, dawg.
The Fed: What? Why?
Banks: See this bag I’m holding? It’s full of, like, assets or whatever. Mostly crappy debt that we issued. And nobody wants to buy it. So we ain’t got no cash to, y’know, like, issue more debt.
Corporations: And if the banks don’t lend me anything, we don’t have money to grow because no one has any money to buy our stuff. If no one buys our stuff, we can’t hire anyone and our stocks go down. Oh man, that means retirees are boned, right? What a bummer.
The Fed: But… you guys are the ones who fired everyone.
Corporations: That’s what I’m saying, dude! Now they don’t have any money to buy stuff. Crazy how that works, right? Economics is, like, c r a z y if you think about it.
The Fed: Ok… Banks. How about if we make loans to you nearly for free and, you know, take some of those assets off your hands and replace them with cash. Would you do more than no things then?
Banks: We'll have to see, I guess. I dunno.
The Fed: That’s what we’re doing. We’re rolling with that. After all, Congress just cut a check to carmakers. And our boss, Baby Boy Ben Bernanke, even gave a speech about this exact kind of thing. So let’s do this.
[The Fed: Exits]
Banks: Yo dudes. So do you want, like, cheap loans and mortgages and stuff?
Corporations: [Makes finger guns.] Bet.
The People: Why is the Fed giving banks a bailout? The Fed is trash. Boo hiss.
2013
[The Fed: Enters]
The Fed: Hey, things are looking pretty good! Y'all able to stand on your own two feet again?
Banks: [Obviously hung over.] Oh, hm. Would you be, like, super mad if we said no?
Corporations: Bro, I mean… Just look at all these unprofitable tech startups hiring people because of their easy access to cheap capital. And look at all these big megacorporations buying back shares to help retirees and investors with inflated stock prices. You can’t just, like, start rocking the boat.
The Fed: Rock the bo– You realize y’all can do this stuff without us force-feeding you cash, right?
Banks: Big if true.
The Fed: Look, we’ve been taking $2.9 trillion worth of assets from you guys so that you have cash to invest in REAL THINGS that can create REAL JOBS for DECADES TO COME… Don’t you think it's time to start maybe beginning to consider the possibility of, you know, you guys stepping up to the plate and putting that money to work in a productive way?
[Banks and Corporations: Laugh in unison. Long pause follows.]
Banks: Oh. Oh you’re serious.
Corporations: You want us to crash the market and fire everyone? ‘Cuz we'll do it. We're C R A Z Y.
The Fed: Ok, well. Please don't do those things. But I’m serious. Y'all need to step up, because we're not going to support you for much longer. In fact, we’re thinking about tapering this year.
[The Fed: Exits.]
Banks: Dude. What a f***ing Narc.
Corporations: Right? Let’s crash the market just a little by issuing a few dire warnings about ongoing challenges in, like, the business cycle or labor market or trade or whatever. Just to spook them so they don’t take the cash away too quick.
Banks: Genius.
The People: Why is the Fed letting this easy money continue to manipulate the markets? The Fed is trash. Boo hiss.
2018
[The Fed: Enters]
The Fed: Banks? Corporations? Hello? Where are you?
Banks: [Jumps up from the floor, wiping white residue from their upper lip] Huh? Oh snap, sup Fed. Didn't expect to see you round for a while.
The Fed: What the heck have you guys been doing?
Corporations: What, all this? [Gestures vaguely in the direction of the economy.] I mean, 2016 and 2017 were a party. Great time. The People loved it. Especially when Trump got elected. It’s like the ragin’ ‘80s all over again!
Banks: You know, I was a little worried when Energy markets tanked in 2014. But have you heard about this thing called cryptocurrency? I mean, it bombed earlier this year, but it’s pretty rad: It’s like the money you’re giving us… but better because you can’t trace what we do with it. So we’re going in hard on it while it’s cheap.
The Fed: The excess! The irresponsibility! The speculation! The overvaluation! That's it. We're cutting you off. No more cheap debt! And no more asset purchases. I mean it. The party is OVER.
[The Fed: Exits.]
Corporations: Yo, maybe The Fed is right. Do you think we should, I dunno, quit partying so hard?
Banks: Stop? Nah. We’re just getting started. At the end of this year, fire enough people and do that market crashy thing again so the Fed has to keep giving us money. And then we're going out with a bash. 2019 is going to be the best year, like, ever. And absolutely nothing unexpected is going to spring up that’ll derail this party.
The People: Why is the Fed destroying our retirement funds by raising rates? The Fed is trash. Boo hiss.
2020
[The Fed: Enters wearing a mask]
The Fed: Jesus Christ, did y'all see the news? There’s a pandemic happening. How are you guys holding up? Everything ok?
Corporations: Oh. Uh. Well, we just fired everyone and we, uh…
The Fed: You WHAT?
Corporations: Yeah, we fired everyone and stopped making stuff.
The Fed: But you NEED to make stuff so that you can pay The People to do jobs. The People need to make money and spend money so the economy can work. We’ve been over this.
Corporations: Well, The People don't want to buy stuff right now. They’re stuck at home.
The Fed: BANKS? What the hell is going on?
Banks: Oh, we, like, quit. We're just... yeah, we quit.
The Fed: Are you cutting loans to regular people to help them, you know, get through this ok?
Banks: Were we… were we supposed to do that? Sounds like a job for big government to me. You’re friends with Congress. Tell them to give us money so we can give out bridge loans with a funny name, like…
Corporations: Like PPP.
Banks: Hah, yeah, PPP loans. Let’s go with that.
The Fed: Ok. That’s IT. We're going back to how it was in 2008. Y'all are getting a ton of cheap loans, and I'm taking away a ton of your assets and replacing it with cash. You two bozos better do something with it that actually helps people this time. If this mess isn't fixed before I come back, there'll be hell to pay!
[The Fed: Exits.]
Corporations: What the hell are we supposed to do with all this cash? It's not like people want to buy stuff, so there’s no point in making stuff.
Banks: I don't know, dude. Capitalize a bunch of speculative nonsense like SPACs and work-from-home BS so it looks like we're doing something. Give Bezos and Musk and Branson some money to build rockets or whatever. I don’t know.
Corporations: What are you going to do?
Banks: Lending people a butt ton of money, I guess! I mean, I don’t remember that ever causing problems before. Do you?
The People: Why is the Fed allowing billionaires to get richer while everyone else suffers? The Fed is trash. Boo hiss.
2022
[The Fed: Enters]
The Fed: Ok, guys, what the hell is going on. Why is inflation off the charts?
Banks: Well, you gave us a bunch of free money and told us to use it, so we did.
The Fed: But why is everything getting more expensive?
Corporations: Ooh, ooh. I know the answer, dude! It’s because we're charging people more.
The Fed: What the f***? Why?
Corporations: Because things are getting more expensive for us.
The Fed: Again... why?
Corporations: ‘Cuz we stopped making stuff like... Jeez, was it, like, 2 years ago already?
The Fed: Why didn't you spend that money I gave you guys to, I don't know, make stuff?
Corporations: Bro, do you know how hard it is to restart a party after you just said it’s over? You can’t just be like, “Syke, just a joke, come on back. Keep partying! Jobs for everyone!” We tried and The People are like, “No, give us more money first so we can afford to live.” Totally, like, immature if you ask me. What happened to people’s work ethic? I blame liberal indoctrination in the schools.
The Fed: But… you guys are the ones raising prices in the first place.
Corporations: I mean, yeah. But how could we have known in 2020 that people would want to buy stuff again someday and that the government would just cut people checks to buy things? That's never happened before! And It’s not like we invested the money we got into making stuff here – that’d be stupid! And do you know how expensive it is to ship stuff nowadays? I’m telling you, it’s the supply chain. Things will be ship-shape by 2023. 2024 tops. I promise.
The Fed: And banks? What did you do with all that money?
Banks: Oh dude, get this. You’re going to be so proud of us. We gave, like, everyone a dummy cheap mortgage. But...
The Fed: But what?
Banks: Well. Folks used those mortgages to buy houses. Like a lot. But since corporations stopped making stuff 2 years ago, now there's not enough houses. I think we might have caused another housing bubble? I’m not sure.
The Fed: You’ve got to be kidding.
Banks: It’s ok. I’m sure this time it’ll be different.
The Fed: ENOUGH! You're both cut off. Debt's going to get more expensive and all those assets we took out of the market? Yeah. We're going to put it back in to pull the cash out of the system. You’re about to hear a giant sucking sound. Slurp slurp slurp. No more money for you two. Learn how to run a damn business.
Corporations: But then, like, people won't have money to buy our stuff.
The Fed: Make it cheaper.
Corporations: Tssss, yeah. I think I'd rather just, I dunno, fire everyone again? We’ve been partying pretty hard and it’d be cool to do, like, nothing again.
The Fed: Don't you f***ing dare.
Corporations: I'll do it. Don’t you know? I'm C R A Z Y.
The Fed: No more of this BS. Enough with the stupid ultimatums and theatrics. Figure out this supply chain stuff on your own. No more cheap debt, no more asset purchases. If the economy has to crash, so be it. You got us into this, now it’s on you two to figure it out.
[The Fed: Exits]
Corporations: Well... they asked for this. If only the Fed had the foresight to prevent this from happening. [Begins to fire everyone and cut costs.]
Banks: Yeah, if only the Fed wasn't such a narc, we could have kept the party going. [Begins raising mortgage and loan rates.]
The People: Why is the Fed sucking all the money out of the system, destroying jobs, and crashing the market? The government is a bunch of jokers and the Fed is trash. Boo hiss.
[Curtains.]
The End
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