1 00:00:10,200 --> 00:00:14,320 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,400 --> 00:00:17,520 Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, do you 3 00:00:17,560 --> 00:00:20,840 Speaker 1: remember like after the Great Financial Crisis and the FED 4 00:00:20,920 --> 00:00:23,680 Speaker 1: couldn't get the unemployment rate down even with all the 5 00:00:23,800 --> 00:00:27,120 Speaker 1: raid cuts, and people were talking about like monetary policy 6 00:00:27,200 --> 00:00:29,240 Speaker 1: is pushing on a string in this environment. You remember 7 00:00:29,240 --> 00:00:32,000 Speaker 1: hearing that termola? You know what I remember? I remember 8 00:00:32,040 --> 00:00:36,600 Speaker 1: people complaining about below target inflation for many, many, many 9 00:00:36,680 --> 00:00:39,000 Speaker 1: years and how the FED we couldn't figure out why 10 00:00:39,400 --> 00:00:42,120 Speaker 1: the FED wasn't able to push up prices, and now 11 00:00:42,200 --> 00:00:44,880 Speaker 1: fast forward to you know, twenty twenty three, we can't 12 00:00:44,920 --> 00:00:48,040 Speaker 1: figure out why the FED can't bring inflation under control. 13 00:00:48,159 --> 00:00:51,680 Speaker 1: I don't want to insult like the various like brilliant 14 00:00:52,240 --> 00:00:55,040 Speaker 1: economists and pundits out there. I never would, but I 15 00:00:55,240 --> 00:00:58,560 Speaker 1: always found the complaints about like too low inflation to 16 00:00:58,640 --> 00:01:01,880 Speaker 1: just be like hilarious, as if that is, as if 17 00:01:01,880 --> 00:01:04,080 Speaker 1: there was ever like a real problem that anyone in 18 00:01:04,080 --> 00:01:06,080 Speaker 1: the world faced. But I do think it's interesting, like 19 00:01:06,240 --> 00:01:09,760 Speaker 1: you know, this pushing on a string narrative, everyone's sort 20 00:01:09,760 --> 00:01:12,920 Speaker 1: of assumed that, Okay, maybe it's hard for the FED 21 00:01:12,959 --> 00:01:16,760 Speaker 1: to get unemployment down, but that if inflation were to accelerate, well, 22 00:01:16,760 --> 00:01:18,840 Speaker 1: at least we know how to deal with that. Yeah. 23 00:01:18,880 --> 00:01:22,080 Speaker 1: But at the same time, there was this weird sort 24 00:01:22,120 --> 00:01:27,080 Speaker 1: of discrepancy or tension because the FED couldn't figure out 25 00:01:27,120 --> 00:01:31,200 Speaker 1: how to push down employment or push up prices at 26 00:01:31,200 --> 00:01:34,760 Speaker 1: that time, but it seemed to do a reasonably good 27 00:01:34,840 --> 00:01:39,000 Speaker 1: job of like intervening in markets. Yeah, and this was 28 00:01:39,400 --> 00:01:42,920 Speaker 1: this was the chorus that you heard for so many years, 29 00:01:42,959 --> 00:01:45,959 Speaker 1: the FED is coming in and distorting the markets, which 30 00:01:46,080 --> 00:01:50,720 Speaker 1: you know, tacitly admits that they do have an impact there. Yeah. 31 00:01:50,800 --> 00:01:53,120 Speaker 1: I think that's sort of like one thing that everyone 32 00:01:53,160 --> 00:01:55,960 Speaker 1: agrees on, especially in the wake of you know, the 33 00:01:56,200 --> 00:01:59,720 Speaker 1: the massive spasms in March twenty twenty, and then of 34 00:01:59,720 --> 00:02:02,120 Speaker 1: course also in the wake of the Great Financial Crisis. 35 00:02:02,160 --> 00:02:04,840 Speaker 1: The FED is pretty good at stopping financial crisis when 36 00:02:04,840 --> 00:02:07,040 Speaker 1: there's a run on some sort of bank if it 37 00:02:07,160 --> 00:02:11,120 Speaker 1: so chooses that. Like, maybe the FED can't get inflation 38 00:02:11,160 --> 00:02:13,680 Speaker 1: at target when it plans, maybe it can't get employment 39 00:02:13,720 --> 00:02:17,639 Speaker 1: at maximum employment, but it can definitely stop bank runs. Well, 40 00:02:17,680 --> 00:02:20,160 Speaker 1: the other thing I would say, and we should stop 41 00:02:20,200 --> 00:02:23,079 Speaker 1: talking soon because our guests, Yeah, we could keep going forever. 42 00:02:23,200 --> 00:02:27,799 Speaker 1: But I think people forget how much things have changed 43 00:02:27,880 --> 00:02:32,000 Speaker 1: in the span of let's see, like fourteen or fifteen years, 44 00:02:32,480 --> 00:02:35,079 Speaker 1: because I remember, you know, I remember writing about the 45 00:02:35,120 --> 00:02:38,000 Speaker 1: corporate bond market and it was like, ooh, maybe one 46 00:02:38,080 --> 00:02:40,280 Speaker 1: day the FED will have to come in and bail 47 00:02:40,320 --> 00:02:42,800 Speaker 1: out the corporate bomb market, and that was the worst 48 00:02:42,840 --> 00:02:45,440 Speaker 1: thing that could happen. That was like, I got so 49 00:02:45,560 --> 00:02:49,080 Speaker 1: much pushback on that, and then lo and behold, twenty 50 00:02:49,160 --> 00:02:51,920 Speaker 1: twenty two happens, and the FED comes in and rescues 51 00:02:52,000 --> 00:02:56,240 Speaker 1: not only the corporate bomb market, but treasuries, munies, pretty 52 00:02:56,320 --> 00:02:59,679 Speaker 1: much everything, and it's sort of an accepted state of 53 00:02:59,680 --> 00:03:02,160 Speaker 1: as now right. And of course this is one of 54 00:03:02,200 --> 00:03:04,480 Speaker 1: the things we talked about in a recent episode, our 55 00:03:04,520 --> 00:03:07,720 Speaker 1: live episode with a love Menend and Josh Younger. Anyway, 56 00:03:08,120 --> 00:03:10,560 Speaker 1: let's get right to it. Let's talk more about how 57 00:03:10,600 --> 00:03:14,480 Speaker 1: the FED has taken on these new powers, these new responsibilities, 58 00:03:14,760 --> 00:03:17,040 Speaker 1: what it can do, what it can't do. We're going 59 00:03:17,080 --> 00:03:19,720 Speaker 1: to be speaking with Gina Smilet, fed reporter at the 60 00:03:19,720 --> 00:03:23,760 Speaker 1: New York Times, also a former Bloomberger, a former colleague 61 00:03:23,760 --> 00:03:26,960 Speaker 1: of US, and the author of the new book Limitless. 62 00:03:26,960 --> 00:03:29,800 Speaker 1: The Federal Reserve takes on a new age of crisis, 63 00:03:29,960 --> 00:03:32,640 Speaker 1: which I see is number one and the Amazon money 64 00:03:32,720 --> 00:03:35,800 Speaker 1: and monetary policy. Ken, Gina, thank you so much for 65 00:03:36,040 --> 00:03:39,160 Speaker 1: coming on Oblots. Yeah, thank you for having me. Congratulations 66 00:03:39,320 --> 00:03:42,440 Speaker 1: on the new book. You know, I'm curious about the 67 00:03:42,480 --> 00:03:46,880 Speaker 1: title because limitless and obviously we talked about like, okay, 68 00:03:46,480 --> 00:03:49,200 Speaker 1: these new powers that the FED has taken on both 69 00:03:49,200 --> 00:03:51,440 Speaker 1: in the wake of the Great Financial Crisis and also 70 00:03:51,520 --> 00:03:54,760 Speaker 1: the COVID shock, and yet there there does seem to 71 00:03:54,760 --> 00:03:57,840 Speaker 1: be a limit on its actual dual mandate, as in, 72 00:03:58,320 --> 00:04:00,400 Speaker 1: doesn't even have the tools to do like the two 73 00:04:00,480 --> 00:04:03,880 Speaker 1: things max employment and stable prices that we think of 74 00:04:03,920 --> 00:04:06,680 Speaker 1: as being the Fed's core mission. Yeah, so I think 75 00:04:06,680 --> 00:04:10,760 Speaker 1: they're actually fairly interrelated. So the title itself actually comes 76 00:04:10,760 --> 00:04:13,560 Speaker 1: from something Chair Jerome Powell said during sort of the 77 00:04:13,640 --> 00:04:16,800 Speaker 1: depths of the twenty twenty pandemic upheaval. You know, he 78 00:04:16,920 --> 00:04:20,159 Speaker 1: was doing an interview with David Wessel at the Brookings Institution, 79 00:04:20,360 --> 00:04:23,640 Speaker 1: and David asked him, you know, is there a limit 80 00:04:23,680 --> 00:04:26,000 Speaker 1: to how much the FED can do to sort of 81 00:04:26,080 --> 00:04:29,560 Speaker 1: save all of these markets that are crashing. I'm paraphrasing, 82 00:04:29,560 --> 00:04:31,839 Speaker 1: but that visual gist of it, and he said effectively, 83 00:04:31,880 --> 00:04:34,400 Speaker 1: you know, no, there's no limit we can do, you know, 84 00:04:34,440 --> 00:04:36,560 Speaker 1: as much of this as we need to within the 85 00:04:36,600 --> 00:04:40,200 Speaker 1: confines of the law. And so that's that's where the 86 00:04:40,279 --> 00:04:42,839 Speaker 1: title draws from. And I do think that's relatively accurate, 87 00:04:42,839 --> 00:04:45,080 Speaker 1: you know, in the sense that these emergency powers that 88 00:04:45,080 --> 00:04:47,240 Speaker 1: they used to save markets, like Tracy was just alluding to, 89 00:04:47,880 --> 00:04:50,720 Speaker 1: very broad, very comprehensive, can be stretched in a lot 90 00:04:50,760 --> 00:04:52,160 Speaker 1: of ways, and that's a lot of what I talk 91 00:04:52,200 --> 00:04:54,360 Speaker 1: about in the book. But then at the same time, 92 00:04:54,440 --> 00:04:56,680 Speaker 1: you know, when you're busily stretching those in all the 93 00:04:56,680 --> 00:05:01,040 Speaker 1: ways that you're stretching them, it doesn't necessarily of guarantee 94 00:05:01,279 --> 00:05:04,720 Speaker 1: a smooth on ramp back to solid growth and stable 95 00:05:04,760 --> 00:05:07,200 Speaker 1: inflation when we get to the other side of a crisis. 96 00:05:08,400 --> 00:05:11,320 Speaker 1: Maybe just to go back in time a little bit, 97 00:05:11,360 --> 00:05:13,480 Speaker 1: and this is one of the themes that emerged from 98 00:05:13,520 --> 00:05:16,640 Speaker 1: our conversations with Josh Younger and love Men and but 99 00:05:16,720 --> 00:05:20,039 Speaker 1: this idea that the Fed's mandate and its role has 100 00:05:20,080 --> 00:05:23,279 Speaker 1: really changed over time. Can you talk to us about, 101 00:05:23,360 --> 00:05:27,480 Speaker 1: you know, what was the original conception of the FED 102 00:05:27,880 --> 00:05:30,800 Speaker 1: versus what it is today. Yes, So I spend a 103 00:05:30,880 --> 00:05:33,080 Speaker 1: huge amount of time on this in the book because 104 00:05:33,080 --> 00:05:36,200 Speaker 1: I think it's just so interesting, and I think the 105 00:05:36,279 --> 00:05:39,360 Speaker 1: upshot is basically, the FED as it is today is 106 00:05:39,480 --> 00:05:42,640 Speaker 1: not the FED as it was originally envisaged in nineteen 107 00:05:42,680 --> 00:05:46,520 Speaker 1: thirteen when it was set up in basically anyway, nineteen thirteen, 108 00:05:46,600 --> 00:05:49,360 Speaker 1: FED was set up to be a really limited institution 109 00:05:49,440 --> 00:05:51,479 Speaker 1: that was basically going to come in and prevent runs 110 00:05:51,480 --> 00:05:55,159 Speaker 1: on the bank, which were very frequent characteristic of society. 111 00:05:55,440 --> 00:05:57,360 Speaker 1: In that time. We had just had a bunch of 112 00:05:57,480 --> 00:06:00,679 Speaker 1: big financial crises, including a very painful one in nineteen 113 00:06:00,680 --> 00:06:03,560 Speaker 1: oh seven that cost a very bad recession, and so 114 00:06:03,720 --> 00:06:05,640 Speaker 1: that was sort of the idea is we need some 115 00:06:05,680 --> 00:06:07,880 Speaker 1: sort of institution that can both sort of make money 116 00:06:07,920 --> 00:06:10,560 Speaker 1: more organized and make sure that it's not getting stuck 117 00:06:10,560 --> 00:06:13,120 Speaker 1: in Tallahassee when you need it in somewhere in the 118 00:06:13,120 --> 00:06:15,760 Speaker 1: middle of Kentucky. And we need an institution that can 119 00:06:15,800 --> 00:06:17,719 Speaker 1: make sure there's sort of a lender of last resort, 120 00:06:17,800 --> 00:06:20,240 Speaker 1: somebody who can back up markets in times of crisis. 121 00:06:20,440 --> 00:06:23,640 Speaker 1: So those emergency powers always kind of they're very limited 122 00:06:23,640 --> 00:06:26,680 Speaker 1: at the outset. The monetary policy powers really not there 123 00:06:26,680 --> 00:06:28,800 Speaker 1: at the outset, because we were if you recall back, 124 00:06:28,800 --> 00:06:31,320 Speaker 1: you know, we're on the gold standard that sort of 125 00:06:31,360 --> 00:06:34,119 Speaker 1: had some sort of self breaking mechanism. We regularly drop 126 00:06:34,240 --> 00:06:36,480 Speaker 1: the gold standard. So, I mean it was not some 127 00:06:36,560 --> 00:06:39,760 Speaker 1: cure all solution for inflation, but just the way we 128 00:06:39,800 --> 00:06:42,400 Speaker 1: thought about inflation and society very different at the time, 129 00:06:42,560 --> 00:06:45,080 Speaker 1: and the FED didn't have such a developed role in 130 00:06:45,160 --> 00:06:47,960 Speaker 1: sort of regulating the speed of the economy back then. 131 00:06:48,400 --> 00:06:51,640 Speaker 1: FED independence is a term that you hear a lot, 132 00:06:52,200 --> 00:06:56,120 Speaker 1: and I feel like it has different definitions and different contexts. 133 00:06:56,240 --> 00:06:59,200 Speaker 1: But can you talk about, like where did this term 134 00:06:59,400 --> 00:07:02,000 Speaker 1: come from and what did it mean? Like, what is 135 00:07:02,080 --> 00:07:04,479 Speaker 1: this idea? What was the purpose of it? What do 136 00:07:04,560 --> 00:07:06,760 Speaker 1: people mean? And where did it? Yeah? Where did it 137 00:07:06,760 --> 00:07:09,279 Speaker 1: originate from? Yeah? So we need to do a little 138 00:07:09,360 --> 00:07:12,000 Speaker 1: bit more history right here. So you get up through 139 00:07:12,480 --> 00:07:14,520 Speaker 1: the nineteen thirties and the FED has really kind of 140 00:07:14,520 --> 00:07:17,880 Speaker 1: figured out how to actually do some macroeconomic management. They 141 00:07:17,920 --> 00:07:19,920 Speaker 1: sort of figure out that if you buy and sell bonds, 142 00:07:20,000 --> 00:07:22,480 Speaker 1: it can guide interest rates into place you can either 143 00:07:22,520 --> 00:07:25,040 Speaker 1: speed up the economy and slow times or slow it 144 00:07:25,080 --> 00:07:28,239 Speaker 1: down when you need to. And up into the nineteen fifties, 145 00:07:28,280 --> 00:07:30,680 Speaker 1: the FED really starts to take on sort of this 146 00:07:30,800 --> 00:07:34,920 Speaker 1: inflation management job and what we see in the nineteen 147 00:07:35,000 --> 00:07:37,880 Speaker 1: fifties is the Truman administration is really leaning on the 148 00:07:37,880 --> 00:07:40,600 Speaker 1: Federal Reserve to keep interest rates very low, to try 149 00:07:40,640 --> 00:07:44,320 Speaker 1: and sort of buy bonds, use it its ability to 150 00:07:44,680 --> 00:07:48,240 Speaker 1: print money effectively to help sort of fund war efforts, 151 00:07:48,320 --> 00:07:51,160 Speaker 1: fund you know, the fiscal fiscal policies that they want 152 00:07:51,200 --> 00:07:53,800 Speaker 1: to do. And the FED is very concerned about inflation, 153 00:07:53,920 --> 00:07:56,800 Speaker 1: and so we see this real rebellion at the FED 154 00:07:56,840 --> 00:07:59,600 Speaker 1: where they work very hard to wrestle their wrestle control 155 00:07:59,640 --> 00:08:03,160 Speaker 1: over their policies. Back. Mariner Eccles, who's one of the 156 00:08:02,840 --> 00:08:07,960 Speaker 1: sort of important pivotal figures in early FED history, actually 157 00:08:08,040 --> 00:08:10,880 Speaker 1: ends up releasing an account of a very sort of 158 00:08:11,360 --> 00:08:14,560 Speaker 1: thans meeting between the Truman administration and the FOMC to 159 00:08:14,640 --> 00:08:17,960 Speaker 1: the press. It embarrasses the administration. The administration decides to 160 00:08:17,960 --> 00:08:19,520 Speaker 1: come to some sort of agreement with the Fed, and 161 00:08:19,520 --> 00:08:22,520 Speaker 1: we get this nineteen fifty one Fed Treasury Accord, which 162 00:08:22,560 --> 00:08:25,560 Speaker 1: really hands the FED a lot of independence over monetary policy, 163 00:08:25,560 --> 00:08:29,320 Speaker 1: a lot of ability to not necessarily set the targets itself. 164 00:08:29,360 --> 00:08:31,840 Speaker 1: You know, it still has to aim for maximum employment 165 00:08:31,880 --> 00:08:35,280 Speaker 1: and stable inflation, as Congress eventually defines, but it does 166 00:08:35,480 --> 00:08:37,880 Speaker 1: get to decide how it's going to go about those jobs, 167 00:08:38,080 --> 00:08:42,280 Speaker 1: completely independent of the partisan process. So it's funny you're 168 00:08:42,280 --> 00:08:44,920 Speaker 1: talking about this because I wrote about it and we 169 00:08:45,000 --> 00:08:47,640 Speaker 1: talked a lot about it with Josh Younger on that 170 00:08:47,720 --> 00:08:51,360 Speaker 1: episode about the origins of the shadow banking system and 171 00:08:51,480 --> 00:08:54,679 Speaker 1: sort of the modern financial system as well. But just 172 00:08:54,720 --> 00:08:57,440 Speaker 1: to back up slightly, when we talk about central bank 173 00:08:57,480 --> 00:09:01,240 Speaker 1: independence nowadays, we generally talk about it as a good thing, 174 00:09:01,360 --> 00:09:05,439 Speaker 1: and it's often considered a hallmark of a developed economy 175 00:09:05,559 --> 00:09:10,440 Speaker 1: versus say, in an emerging market with perhaps more institutional weakness, 176 00:09:10,480 --> 00:09:13,360 Speaker 1: where the central bank might be pressured to do whatever 177 00:09:13,400 --> 00:09:17,040 Speaker 1: the government wants. Why is it desirable to have an 178 00:09:17,080 --> 00:09:20,560 Speaker 1: independent FED that is perhaps a little bit more free 179 00:09:20,760 --> 00:09:24,280 Speaker 1: from the types of political considerations that you would see 180 00:09:24,400 --> 00:09:28,200 Speaker 1: in electric politicians. Yeah, I think a huge part of 181 00:09:28,200 --> 00:09:31,280 Speaker 1: the reason we treat it as sort of the gospel 182 00:09:31,520 --> 00:09:34,960 Speaker 1: that it is that FED independence should be protected at 183 00:09:35,000 --> 00:09:38,280 Speaker 1: all costs traces back to the nineteen seventies. So in 184 00:09:38,320 --> 00:09:42,040 Speaker 1: the nineteen seventies we had an inflation situation not hugely 185 00:09:42,080 --> 00:09:45,200 Speaker 1: unlike the one today, originally caused by some supply issues, 186 00:09:45,280 --> 00:09:49,200 Speaker 1: some excess demand issues tied to war efforts, and it 187 00:09:49,320 --> 00:09:52,440 Speaker 1: just lasted for years and years, and the FED would 188 00:09:52,440 --> 00:09:54,760 Speaker 1: occasionally raise rates to try and bring it back under control, 189 00:09:54,800 --> 00:09:57,400 Speaker 1: but then when unemployment went up, they would quickly lower 190 00:09:57,400 --> 00:09:59,600 Speaker 1: the rates again, and they just never got a handle 191 00:09:59,640 --> 00:10:03,600 Speaker 1: on it. Historians economic historians think that part of the 192 00:10:03,640 --> 00:10:07,280 Speaker 1: reason for that is Burned then the FED chair was 193 00:10:07,320 --> 00:10:10,640 Speaker 1: really caving to the Nixon administration. Nixon was very nervous 194 00:10:10,640 --> 00:10:13,680 Speaker 1: about reelection. He wanted rates to stay low. Low rates 195 00:10:13,760 --> 00:10:16,560 Speaker 1: translates to low unemployment, and so that was sort of 196 00:10:16,559 --> 00:10:19,600 Speaker 1: the conceit. And it's pretty clear from tapes that were 197 00:10:19,640 --> 00:10:23,280 Speaker 1: released after the fact that Burns, a huge Nixon loyalist, 198 00:10:23,400 --> 00:10:26,160 Speaker 1: did in fact take that into consideration when setting monetary policy. 199 00:10:26,280 --> 00:10:27,599 Speaker 1: And so the idea is, you just don't want to 200 00:10:27,640 --> 00:10:30,439 Speaker 1: have these short term political considerations in place when you're 201 00:10:30,480 --> 00:10:34,280 Speaker 1: doing something as important and potentially painful as fighting inflation, 202 00:10:34,440 --> 00:10:37,439 Speaker 1: because it puts away your decision making in a way 203 00:10:37,440 --> 00:10:40,080 Speaker 1: that allows inflation to become sort of entrenched in the economy. 204 00:10:40,120 --> 00:10:42,200 Speaker 1: And we really saw in that episode that it was 205 00:10:42,559 --> 00:10:45,880 Speaker 1: very difficult to get inflation out once it had been 206 00:10:45,960 --> 00:10:48,840 Speaker 1: so ingrained in economy. There was what people now refer 207 00:10:48,960 --> 00:10:51,880 Speaker 1: to as this inflationary psychology that got just sort of 208 00:10:51,960 --> 00:10:55,280 Speaker 1: really dug in and took a big recession to wipe out. 209 00:11:12,520 --> 00:11:15,000 Speaker 1: Let me sort of like zoom up a bit towards 210 00:11:15,120 --> 00:11:17,560 Speaker 1: the present day, and I'm we're happy to go back 211 00:11:17,720 --> 00:11:20,680 Speaker 1: into the history because I think that's interesting. But one 212 00:11:21,200 --> 00:11:23,920 Speaker 1: dynamic that feels real, and tell me if I'm wrong, 213 00:11:24,160 --> 00:11:28,120 Speaker 1: is that one nice thing about the FED is that 214 00:11:28,200 --> 00:11:30,760 Speaker 1: it can sort of just move, and that there is like, 215 00:11:31,000 --> 00:11:33,679 Speaker 1: I think people have very low expectations for what Congress 216 00:11:33,800 --> 00:11:35,840 Speaker 1: can do on anything these days. It's sort of like 217 00:11:36,160 --> 00:11:38,120 Speaker 1: every once in a while you get a window where 218 00:11:38,160 --> 00:11:42,160 Speaker 1: one party controls the White House and both Houses of Congress, 219 00:11:42,160 --> 00:11:44,640 Speaker 1: and then they have a limited political capital to spend, 220 00:11:45,200 --> 00:11:48,520 Speaker 1: whereas in theory, the FED can just move very fast, 221 00:11:48,559 --> 00:11:51,080 Speaker 1: and we saw that in the middle of March twenty twenty, 222 00:11:51,080 --> 00:11:54,520 Speaker 1: for example. How much of the sort of accumulation of 223 00:11:54,679 --> 00:11:57,600 Speaker 1: powers that the FED has, particularly over the last fifteen 224 00:11:57,679 --> 00:12:00,920 Speaker 1: years during a period of like deep partisan division, is 225 00:12:00,960 --> 00:12:05,880 Speaker 1: simply a function of well, it's one institution in DC 226 00:12:06,480 --> 00:12:09,480 Speaker 1: that is not riven by partisan gridlock. Yeah, So I 227 00:12:09,520 --> 00:12:11,200 Speaker 1: think this is sort of the central conceit of my 228 00:12:11,240 --> 00:12:13,680 Speaker 1: book is we've built up all these powers over a 229 00:12:13,720 --> 00:12:16,640 Speaker 1: time basically because they always made sense in the moment, 230 00:12:16,679 --> 00:12:19,560 Speaker 1: and now we're using them all simultaneously because of the 231 00:12:19,600 --> 00:12:22,560 Speaker 1: situation in Washington, and so I think, you know, everything 232 00:12:22,559 --> 00:12:24,920 Speaker 1: we've talked about so far, so nineteen thirteen we're set 233 00:12:25,000 --> 00:12:28,319 Speaker 1: up to guard against banking crises. Nineteen thirties, we really 234 00:12:28,520 --> 00:12:31,240 Speaker 1: deepen those powers to guard against banking crises because that's 235 00:12:31,280 --> 00:12:33,599 Speaker 1: the problem of the day. Nineteen fifties, the problem of 236 00:12:33,600 --> 00:12:36,240 Speaker 1: the day is increasingly inflation. Nineteen seventies, that is the 237 00:12:36,280 --> 00:12:38,360 Speaker 1: big problem. And so you have sort of these like 238 00:12:38,480 --> 00:12:40,840 Speaker 1: ebbs and flows where everybody's focused, everyone at the fedest 239 00:12:40,840 --> 00:12:43,079 Speaker 1: focused on banking crises, then everyone at the fetist focused 240 00:12:43,120 --> 00:12:45,760 Speaker 1: on inflation. Suddenly we get to the modern era and 241 00:12:46,080 --> 00:12:48,439 Speaker 1: everything is suddenly the FEDE job. You know, we're very 242 00:12:48,440 --> 00:12:51,400 Speaker 1: concerned with sort of the monetary policy management portion here, 243 00:12:51,559 --> 00:12:54,160 Speaker 1: but we're also using them pretty aggressively to fend off 244 00:12:54,200 --> 00:12:56,840 Speaker 1: financial crises and moments of financial crises. And I think 245 00:12:56,880 --> 00:12:59,679 Speaker 1: a lot of the reason for that is because some 246 00:12:59,720 --> 00:13:01,120 Speaker 1: of the things that they can do in moments of 247 00:13:01,160 --> 00:13:03,920 Speaker 1: financial crisis are a lot easier than coming to some 248 00:13:03,960 --> 00:13:07,000 Speaker 1: sort of agreement on Capitol Hill on either a bank 249 00:13:07,040 --> 00:13:10,120 Speaker 1: regulation that might preempt some of those financial problems, or 250 00:13:10,240 --> 00:13:14,079 Speaker 1: be some sort of bailout for the institutions that are 251 00:13:14,080 --> 00:13:18,080 Speaker 1: a problem. So it's a small miracle whenever Congress manages 252 00:13:18,320 --> 00:13:20,960 Speaker 1: to pass a law and yet the Fed can announce 253 00:13:21,080 --> 00:13:25,480 Speaker 1: like a trillion dollar program. It seems almost overnight. Why 254 00:13:25,640 --> 00:13:27,840 Speaker 1: is that. Talk to us a little bit more about 255 00:13:27,880 --> 00:13:32,040 Speaker 1: the process and what limitations, if any, there actually are. 256 00:13:32,240 --> 00:13:34,559 Speaker 1: I guess the clue is in the name of your 257 00:13:34,559 --> 00:13:38,000 Speaker 1: book limitless. But if there are limitations or constraints in 258 00:13:38,080 --> 00:13:40,959 Speaker 1: what the FED can do, Yeah, so there are some limitations, 259 00:13:41,000 --> 00:13:43,400 Speaker 1: but I think that they're actually often exaggerated, even by 260 00:13:43,440 --> 00:13:46,240 Speaker 1: the experts who know a lot about this. So in 261 00:13:46,320 --> 00:13:49,439 Speaker 1: moments of extreme crisis, the FED basically has to get 262 00:13:49,440 --> 00:13:53,679 Speaker 1: a declaration that we are in an unusual and exigent circumstance, 263 00:13:54,200 --> 00:13:56,040 Speaker 1: and it then has to get sign off from the 264 00:13:56,040 --> 00:13:58,840 Speaker 1: Treasury Secretary in order to set up an emergency lending 265 00:13:58,880 --> 00:14:02,840 Speaker 1: facility to help in organization or entity. The facility has 266 00:14:02,880 --> 00:14:05,840 Speaker 1: to be broad based, which lawyers generally mean think means 267 00:14:05,880 --> 00:14:08,120 Speaker 1: about five institutions would have to be able to tap 268 00:14:08,160 --> 00:14:10,959 Speaker 1: it and the FED has to be secured to its satisfaction, 269 00:14:11,200 --> 00:14:15,000 Speaker 1: which means that it can't expect to lose money depending 270 00:14:15,000 --> 00:14:18,719 Speaker 1: on whatever it's defining as its satisfaction. Most lawyers at 271 00:14:18,720 --> 00:14:20,560 Speaker 1: the FED will tell you that this means they can't 272 00:14:20,600 --> 00:14:23,520 Speaker 1: lose money. Lawyers outside the FED will say, that's kind 273 00:14:23,560 --> 00:14:25,720 Speaker 1: of dicey. We're not actually sure that that's true. I 274 00:14:25,720 --> 00:14:28,200 Speaker 1: mean that has always seemed to be really fluid, because 275 00:14:28,240 --> 00:14:31,200 Speaker 1: I remember post two thousand and eight, when the FED 276 00:14:31,400 --> 00:14:34,360 Speaker 1: was doing one of its bond buying programs. Oh, it 277 00:14:34,400 --> 00:14:37,520 Speaker 1: was buying mortgage backed securities mbs, and it said it 278 00:14:37,600 --> 00:14:41,000 Speaker 1: was only buying investment grade mbs. And I remember looking 279 00:14:41,080 --> 00:14:45,360 Speaker 1: up each individual q set for like a week and 280 00:14:45,560 --> 00:14:48,120 Speaker 1: seeing that some of it wasn't investment grade when the 281 00:14:48,120 --> 00:14:51,720 Speaker 1: FED bought it. But it didn't seem that concerned with 282 00:14:51,880 --> 00:14:54,360 Speaker 1: that aspect of the program. Yeah, that's and that was 283 00:14:54,360 --> 00:14:57,000 Speaker 1: actually technically quey. But I think the same basic rules 284 00:14:56,960 --> 00:15:01,000 Speaker 1: supply with these emergency lending facilities. They really are pretty broad, though. 285 00:15:01,080 --> 00:15:03,480 Speaker 1: There's so I think I'm really interesting. The example here 286 00:15:03,560 --> 00:15:05,360 Speaker 1: that comes up a lot is there is this one 287 00:15:05,400 --> 00:15:07,880 Speaker 1: program within the nerdiest name of all time. I think 288 00:15:07,880 --> 00:15:10,280 Speaker 1: because nobody wants to talk about it, but it's the 289 00:15:10,400 --> 00:15:12,600 Speaker 1: term asset loan facility, and basically what it does is 290 00:15:12,600 --> 00:15:16,240 Speaker 1: it buys like it takes honest collateral bundle towns. I 291 00:15:16,280 --> 00:15:19,920 Speaker 1: remember TAP, yeah, yeah, And so we used it twice. 292 00:15:19,920 --> 00:15:21,280 Speaker 1: We used it in two thousand and eight. We used 293 00:15:21,280 --> 00:15:23,320 Speaker 1: it again in twenty twenty. The two thousand and eight 294 00:15:23,440 --> 00:15:26,320 Speaker 1: version was collateralized by the private sector. The FED didn't 295 00:15:26,360 --> 00:15:28,840 Speaker 1: have any government money backing that up. And that's always 296 00:15:28,880 --> 00:15:30,880 Speaker 1: sort of the idea is that, oh, well, there's some 297 00:15:30,920 --> 00:15:33,560 Speaker 1: constraints in here because Congress has to appropriate some money 298 00:15:33,600 --> 00:15:37,200 Speaker 1: to back up these facilities. That's clearly not technically true 299 00:15:37,200 --> 00:15:39,360 Speaker 1: based on the way we've actually done this in the past, 300 00:15:39,880 --> 00:15:42,160 Speaker 1: And so I think there are fewer limits then maybe 301 00:15:42,160 --> 00:15:45,440 Speaker 1: we appreciate. But the one thing that does seem to 302 00:15:45,480 --> 00:15:48,280 Speaker 1: be a real limit is the FED doesn't really have 303 00:15:48,400 --> 00:15:51,600 Speaker 1: a way of just like giving household buying power, which 304 00:15:51,640 --> 00:15:54,440 Speaker 1: of course was a really powerful aspect. It would seem 305 00:15:54,920 --> 00:15:57,560 Speaker 1: of the V shaped recovery we saw it coming out 306 00:15:57,560 --> 00:16:01,160 Speaker 1: of twenty twenty. It was a probable a big aspect 307 00:16:01,160 --> 00:16:03,160 Speaker 1: of the very slow recovery we saw out of two 308 00:16:03,200 --> 00:16:06,920 Speaker 1: thousand and nine, the very modest fiscal stimulas, especially in retrospect, 309 00:16:07,240 --> 00:16:10,360 Speaker 1: not even a trillion from the Obama administration. And it 310 00:16:10,400 --> 00:16:12,960 Speaker 1: feels like a lot of the frustration that people have 311 00:16:13,000 --> 00:16:16,200 Speaker 1: towards the FIT is that it does, on some sense 312 00:16:16,200 --> 00:16:19,880 Speaker 1: seem to be limitless designing these new programs, but actually 313 00:16:19,920 --> 00:16:22,520 Speaker 1: the one thing that might actually move the dial big 314 00:16:22,560 --> 00:16:26,120 Speaker 1: time or meaningfully from a macro perspective, give people money. 315 00:16:26,320 --> 00:16:27,720 Speaker 1: That's still like the one thing they don't really have 316 00:16:27,720 --> 00:16:30,280 Speaker 1: any way of doing right, lending not spending. It is 317 00:16:30,360 --> 00:16:33,760 Speaker 1: sort of the phrase Jo repeats at nauseam. They can lend, 318 00:16:33,840 --> 00:16:36,760 Speaker 1: they cannot spend. You can do lending in ways that 319 00:16:36,840 --> 00:16:39,240 Speaker 1: look a little bit like spending, you know. I think 320 00:16:39,240 --> 00:16:42,160 Speaker 1: we saw some push to do that during the depths 321 00:16:42,200 --> 00:16:44,880 Speaker 1: of twenty twenty, like there were some ideas about making 322 00:16:45,080 --> 00:16:49,360 Speaker 1: loans to municipalities really long termed and really low rate, 323 00:16:49,760 --> 00:16:52,320 Speaker 1: and we didn't actually see them take up that up 324 00:16:52,360 --> 00:16:55,080 Speaker 1: too much. I think they still very much see themselves 325 00:16:55,080 --> 00:16:57,400 Speaker 1: as backstop entities who shouldn't be used in that way 326 00:16:57,400 --> 00:17:00,600 Speaker 1: because it's just too close to fiscal policy. But again, 327 00:17:00,640 --> 00:17:03,120 Speaker 1: I think that's more of a personnel choice that's being 328 00:17:03,160 --> 00:17:07,240 Speaker 1: made versus something that is necessarily legally extremely required, which 329 00:17:07,240 --> 00:17:09,000 Speaker 1: I think is an interesting thing to talk about. And 330 00:17:09,280 --> 00:17:13,160 Speaker 1: I think that, you know, the interesting thing to watch 331 00:17:13,480 --> 00:17:15,879 Speaker 1: is how are these programs used in the future. You know, 332 00:17:16,000 --> 00:17:18,080 Speaker 1: will they continue to see them as this backstop? Do 333 00:17:18,119 --> 00:17:21,640 Speaker 1: they think this fiscal separation is very important? So just 334 00:17:21,720 --> 00:17:23,560 Speaker 1: on that topic, I mean, one of the things that 335 00:17:23,600 --> 00:17:26,280 Speaker 1: you will sometimes hear people in markets talk about is 336 00:17:26,280 --> 00:17:29,639 Speaker 1: this idea of the FED getting bang for its book. 337 00:17:30,160 --> 00:17:32,920 Speaker 1: And I guess it was most salient maybe with the 338 00:17:33,000 --> 00:17:36,560 Speaker 1: corporate bond buying program, where they announced, you know, we 339 00:17:36,800 --> 00:17:40,399 Speaker 1: could spend this much buying up corporate bonds to stabilize 340 00:17:40,480 --> 00:17:43,440 Speaker 1: the market. But in practice, I think I can't even 341 00:17:43,440 --> 00:17:46,240 Speaker 1: remember the exact number. You might know it, but it 342 00:17:46,640 --> 00:17:49,399 Speaker 1: was a fraction of the announced amount that they could do. 343 00:17:49,560 --> 00:17:52,479 Speaker 1: And just by virtue of saying that they were going 344 00:17:52,520 --> 00:17:56,600 Speaker 1: to backstop the market, they brought in credit spreads very, 345 00:17:56,720 --> 00:18:01,119 Speaker 1: very dramatically. Is that always going to be the case 346 00:18:01,520 --> 00:18:04,560 Speaker 1: or is there a possibility that as the FED takes 347 00:18:04,560 --> 00:18:07,520 Speaker 1: on more and more responsibilities and if it maybe has 348 00:18:07,560 --> 00:18:10,880 Speaker 1: to use these things over and over again, that sort 349 00:18:10,920 --> 00:18:14,320 Speaker 1: of firepowers starts to dissipate. I think This is such 350 00:18:14,359 --> 00:18:16,560 Speaker 1: an interesting question, and I do not pretend to be 351 00:18:16,680 --> 00:18:18,399 Speaker 1: enough of an expert at market it's to have a 352 00:18:18,440 --> 00:18:20,760 Speaker 1: great answer to it. But I've talked to a lot 353 00:18:20,760 --> 00:18:22,720 Speaker 1: of people about this, and I think you actually get 354 00:18:22,760 --> 00:18:25,320 Speaker 1: a range of opinions. There are some people who say, 355 00:18:25,400 --> 00:18:27,720 Speaker 1: you know, they're such a credible lender of last resort 356 00:18:27,760 --> 00:18:30,520 Speaker 1: that this is basically going to stay this way, that 357 00:18:30,640 --> 00:18:34,520 Speaker 1: you know, we people it'll work forever. Yeah, people believe them. 358 00:18:34,840 --> 00:18:37,199 Speaker 1: I think other people will sometimes point you towards some 359 00:18:37,280 --> 00:18:39,480 Speaker 1: of the treasury market dysfunction that we saw really early 360 00:18:39,520 --> 00:18:42,400 Speaker 1: in the crisis, where it didn't seem like people were 361 00:18:42,760 --> 00:18:46,359 Speaker 1: being completely reassured. And I actually think that's an interesting 362 00:18:46,560 --> 00:18:51,320 Speaker 1: distinction because I think that speaks to sort of market fragmentation, 363 00:18:51,840 --> 00:18:54,240 Speaker 1: you know, it just to sort of rewind the tape here, 364 00:18:54,240 --> 00:18:57,399 Speaker 1: back in twenty twenty, people were dumping treasuries. It wasn't 365 00:18:57,400 --> 00:19:00,000 Speaker 1: like one or two entities, and they weren't necessarily all 366 00:19:00,160 --> 00:19:03,320 Speaker 1: US based dumping treasuries. It was everybody. It was hedge 367 00:19:03,320 --> 00:19:05,720 Speaker 1: funds who had basis trades on, it was a lot 368 00:19:05,720 --> 00:19:07,760 Speaker 1: of international holders. A lot of the selling was coming 369 00:19:07,760 --> 00:19:10,280 Speaker 1: out of like the Cayman islands, and so I think 370 00:19:10,280 --> 00:19:12,480 Speaker 1: there was this real sort of signal problem where the 371 00:19:12,480 --> 00:19:14,439 Speaker 1: FED might be stepping up. You might be pretty familiar 372 00:19:14,480 --> 00:19:16,560 Speaker 1: with what the Fed's doing, but there was this idea like, 373 00:19:16,840 --> 00:19:18,840 Speaker 1: you know, how aggressively are they going to do this? 374 00:19:18,960 --> 00:19:21,280 Speaker 1: Can we trust them? You know, there's so many entities 375 00:19:21,359 --> 00:19:23,439 Speaker 1: having trouble coordinating at the same time. And so I 376 00:19:23,480 --> 00:19:25,880 Speaker 1: do think those market structure issues kind of do matter, 377 00:19:25,920 --> 00:19:29,800 Speaker 1: because FED efficacy could be different if market structure changes 378 00:19:29,840 --> 00:19:33,160 Speaker 1: and becomes more fragmented. I want to get back actually 379 00:19:33,280 --> 00:19:35,520 Speaker 1: to the munique backstop that we saw in twenty twenty, 380 00:19:35,560 --> 00:19:38,840 Speaker 1: which was like a pretty novel, you know, further extending 381 00:19:38,840 --> 00:19:42,679 Speaker 1: of the power, kind of a novel policy intervention. And 382 00:19:42,800 --> 00:19:44,879 Speaker 1: one of these areas that did seem to like is 383 00:19:44,960 --> 00:19:47,919 Speaker 1: this fiscal policy is a monetary policy. It's kind of 384 00:19:47,920 --> 00:19:51,119 Speaker 1: fiscal if you're allowing fiscal authorities to spend money, you know, 385 00:19:51,640 --> 00:19:54,320 Speaker 1: for obvious ways. But the question I have is like, 386 00:19:54,560 --> 00:19:57,240 Speaker 1: when they're thinking about, well, where is the boundary, where's 387 00:19:57,280 --> 00:20:01,359 Speaker 1: the border between what monetary versus lending? Do they like? 388 00:20:01,760 --> 00:20:03,920 Speaker 1: And I've asked this question to others and I'm still 389 00:20:03,960 --> 00:20:05,919 Speaker 1: trying to wrap my head around it. Do they think 390 00:20:05,960 --> 00:20:08,439 Speaker 1: about where they want to go and then backfill the 391 00:20:08,520 --> 00:20:11,880 Speaker 1: legal justification, or do they look at the law and 392 00:20:11,920 --> 00:20:15,120 Speaker 1: then determine how far the law allows them to go? Yeah, 393 00:20:15,160 --> 00:20:17,760 Speaker 1: so I think we've seen that very somewhat by crisis. 394 00:20:18,600 --> 00:20:20,800 Speaker 1: I think in two thousand and eight, I would say 395 00:20:20,800 --> 00:20:23,600 Speaker 1: it was definitely the latter, And I actually think that's 396 00:20:23,640 --> 00:20:26,119 Speaker 1: pretty well documented at this point. Like I think if 397 00:20:26,160 --> 00:20:29,320 Speaker 1: you read like the more recent Burnet keybook for example, 398 00:20:29,440 --> 00:20:32,800 Speaker 1: I think that pretty clearly they took very seriously, very 399 00:20:32,840 --> 00:20:35,119 Speaker 1: seriously this idea that there were things they might have 400 00:20:35,160 --> 00:20:37,439 Speaker 1: wanted to do that well, they knew, they knew what 401 00:20:37,520 --> 00:20:40,080 Speaker 1: had to happen, right, Like I think they like they 402 00:20:40,160 --> 00:20:41,880 Speaker 1: knew it had to happen, and they were really trying 403 00:20:41,920 --> 00:20:43,639 Speaker 1: to figure out how they could accomplish that within the 404 00:20:43,680 --> 00:20:47,200 Speaker 1: confines of their own legal mandate. Got it. I think 405 00:20:47,240 --> 00:20:51,000 Speaker 1: that in twenty twenty is some combination of they knew 406 00:20:51,000 --> 00:20:53,359 Speaker 1: what they were capable of based on the two thousand 407 00:20:53,359 --> 00:20:55,639 Speaker 1: and eight experience, and they were kind of looking for 408 00:20:55,720 --> 00:20:57,960 Speaker 1: places that you might need to build on that given 409 00:20:58,000 --> 00:21:00,760 Speaker 1: the sort of unique circumstance that was twenty twenty. The 410 00:21:00,840 --> 00:21:03,040 Speaker 1: municipal program, though that you mentioned. I think was a 411 00:21:03,080 --> 00:21:06,960 Speaker 1: particularly interesting example because they had literally said for basically 412 00:21:07,040 --> 00:21:08,840 Speaker 1: years at that point that they were not going to 413 00:21:08,880 --> 00:21:11,600 Speaker 1: do municipal bonds. That like, so similar to what you 414 00:21:11,680 --> 00:21:14,160 Speaker 1: said about the corporate bonds, Tracy. They had been very 415 00:21:14,160 --> 00:21:15,720 Speaker 1: clear that this was not a market. It was like 416 00:21:16,040 --> 00:21:18,840 Speaker 1: tossing a rubicon that they didn't want to do, and 417 00:21:18,880 --> 00:21:21,080 Speaker 1: I think they explicitly said that at some point. Yeah, 418 00:21:21,200 --> 00:21:24,160 Speaker 1: Rashida to Leive asked them about it. Freshman Democrat asked 419 00:21:24,280 --> 00:21:26,880 Speaker 1: Pal about it on Hill in twenty nineteen, and he 420 00:21:27,000 --> 00:21:29,000 Speaker 1: was basically like, we don't have this power, nor do 421 00:21:29,080 --> 00:21:32,280 Speaker 1: we want this power. And then kind of, you know, 422 00:21:32,400 --> 00:21:36,159 Speaker 1: very interestingly April ninth, twenty twenty, and they they jumped 423 00:21:36,240 --> 00:21:38,800 Speaker 1: right into that market. You know, the municipal bond market 424 00:21:38,840 --> 00:21:41,560 Speaker 1: was in shambles when they jumped in. It was really bad. 425 00:21:41,760 --> 00:21:44,919 Speaker 1: People were really struggling to issue States and localities like 426 00:21:45,240 --> 00:21:47,479 Speaker 1: Care's Act has just passed, We're not sure if it's 427 00:21:47,560 --> 00:21:50,439 Speaker 1: enough money. States and localities really need money because the 428 00:21:50,440 --> 00:21:53,439 Speaker 1: pandemics on set, you know, there, it was a tough moment, 429 00:21:53,600 --> 00:21:55,320 Speaker 1: and so I think that it's not a surprise that 430 00:21:55,359 --> 00:21:57,320 Speaker 1: they saw the need. But it was interesting that they 431 00:21:57,359 --> 00:21:59,920 Speaker 1: thought they could fulfill it. Well, it definitely reminded me 432 00:22:00,240 --> 00:22:05,120 Speaker 1: at the time of the ECB's OMT program, or the 433 00:22:05,119 --> 00:22:07,200 Speaker 1: ECB said for years, we can't lend to member states, 434 00:22:07,240 --> 00:22:09,400 Speaker 1: we can't lend a member state, and then when things 435 00:22:09,400 --> 00:22:11,639 Speaker 1: are really falling apart, they're like, well we can, and 436 00:22:11,680 --> 00:22:14,240 Speaker 1: the reason we can is because of member states don't 437 00:22:14,280 --> 00:22:17,520 Speaker 1: have a borrowing capacity. Then we can't really fulfill our 438 00:22:17,520 --> 00:22:20,600 Speaker 1: monetary mission. So it's sort of like backfill in a 439 00:22:20,720 --> 00:22:23,920 Speaker 1: new power based on the law, just because they kind 440 00:22:23,920 --> 00:22:26,240 Speaker 1: of realized that the existing thing was untenable when the 441 00:22:26,280 --> 00:22:29,119 Speaker 1: facts changed, change my mind, or whatever that quote was. 442 00:22:29,920 --> 00:22:31,800 Speaker 1: But you know, a lot of what we're talking about 443 00:22:31,880 --> 00:22:36,040 Speaker 1: is the sort of mixing or maybe overlap between monetary 444 00:22:36,119 --> 00:22:39,280 Speaker 1: policy and fiscal and so I want to ask a 445 00:22:39,320 --> 00:22:42,840 Speaker 1: devil's advocate question, and I want to make very clear 446 00:22:43,119 --> 00:22:45,280 Speaker 1: that this is a devil's advocate question, But you know, 447 00:22:46,080 --> 00:22:49,919 Speaker 1: why couldn't we have a situation where if Congress is 448 00:22:50,040 --> 00:22:54,000 Speaker 1: gridlocked and politicians can't do anything, for instance, with the 449 00:22:54,119 --> 00:22:57,960 Speaker 1: debt ceiling, why couldn't we have the FED say that 450 00:22:58,040 --> 00:23:01,760 Speaker 1: it is going to support a particular thing or mandate 451 00:23:01,800 --> 00:23:04,679 Speaker 1: like maybe they want to finance a bunch of renewable energy, 452 00:23:05,240 --> 00:23:08,480 Speaker 1: or maybe they want to finance a lot of infrastructure 453 00:23:08,600 --> 00:23:11,960 Speaker 1: or something like that. Why would that be bad? Yeah, 454 00:23:12,080 --> 00:23:14,280 Speaker 1: so I think that there are some people who think 455 00:23:14,320 --> 00:23:16,320 Speaker 1: that that would actually be great and we should do it. 456 00:23:16,359 --> 00:23:18,199 Speaker 1: And you know, we have this amazing tool at our 457 00:23:18,240 --> 00:23:21,440 Speaker 1: capit at our disposal, and why shouldn't we use it? Basically, 458 00:23:21,800 --> 00:23:24,000 Speaker 1: and that is that is one argument. I think there's 459 00:23:24,040 --> 00:23:27,520 Speaker 1: another side of this story that basically says you wouldn't 460 00:23:27,560 --> 00:23:29,760 Speaker 1: want to do that because if the FED is seen 461 00:23:29,800 --> 00:23:31,920 Speaker 1: as a really part as an actor, if they're doing 462 00:23:32,000 --> 00:23:35,320 Speaker 1: things that one side of the aisle really feels strongly 463 00:23:35,480 --> 00:23:38,919 Speaker 1: shouldn't be happening, you could see a situation where a 464 00:23:39,080 --> 00:23:40,840 Speaker 1: they face a lot of backlash on the hill that 465 00:23:40,880 --> 00:23:43,920 Speaker 1: eventually results in them losing this priced independence that we've 466 00:23:43,960 --> 00:23:46,280 Speaker 1: just talked about, or you could see a situation where 467 00:23:46,280 --> 00:23:48,439 Speaker 1: they're just sort of less trusted as an entity. And 468 00:23:48,520 --> 00:23:52,080 Speaker 1: these are a bunch of unelected officials, right like they're 469 00:23:52,359 --> 00:23:56,360 Speaker 1: sort of mandate. Whatever legitimacy they have in our democratic 470 00:23:56,400 --> 00:23:58,680 Speaker 1: system kind of ties back to this idea that they're 471 00:23:58,720 --> 00:24:01,560 Speaker 1: honest brokers. Nonpartis and trying to be center at the aisle. 472 00:24:02,080 --> 00:24:04,280 Speaker 1: Joe's face when I was asking that question, By the way, 473 00:24:04,359 --> 00:24:05,960 Speaker 1: I could tell that you were waiting for me to 474 00:24:05,960 --> 00:24:08,480 Speaker 1: ask about the trillion dollar coin. Yeah, because you said 475 00:24:08,480 --> 00:24:12,120 Speaker 1: dead ceiling, and so I was like, I got real excited. Wait, wait, wait, wait, 476 00:24:12,160 --> 00:24:15,480 Speaker 1: I would just say Gina's response there. This is the 477 00:24:15,560 --> 00:24:19,399 Speaker 1: reason why I think the trillion dollar coin is actually problematic, 478 00:24:19,400 --> 00:24:21,200 Speaker 1: because it's one thing to say, like, well, I agree 479 00:24:21,200 --> 00:24:23,560 Speaker 1: with them doing it this time, but what about the 480 00:24:23,600 --> 00:24:26,760 Speaker 1: next actor that comes in? You know, you might not 481 00:24:26,880 --> 00:24:29,879 Speaker 1: necessarily agree with it. Then yeah, meant another one, but 482 00:24:30,080 --> 00:24:32,320 Speaker 1: all right, we're gonna actually we're gonna put a parenthetical 483 00:24:32,400 --> 00:24:35,359 Speaker 1: at this part of the conversation. At any point in 484 00:24:35,400 --> 00:24:38,440 Speaker 1: the researching of your book, did you glean any insight 485 00:24:38,560 --> 00:24:41,560 Speaker 1: into whether the FED would accept a trillion dollar platinum coin. 486 00:24:41,720 --> 00:24:44,600 Speaker 1: Did this come up at all in your research? No, 487 00:24:44,880 --> 00:24:46,720 Speaker 1: it did not. It did not, And I will say 488 00:24:46,720 --> 00:24:49,760 Speaker 1: I've spent a lot of time recently rereading all of 489 00:24:49,800 --> 00:24:52,840 Speaker 1: the old transcripts around that limit. I don't think I 490 00:24:52,880 --> 00:24:54,600 Speaker 1: don't think there's going to be a lot of appetite 491 00:24:54,600 --> 00:24:57,000 Speaker 1: over there, I'm sorry to tell you. And when the 492 00:24:57,000 --> 00:25:00,919 Speaker 1: alternative is blowing up the economy as we know, Sue 493 00:25:01,600 --> 00:25:04,240 Speaker 1: suddenly appetites change. But I do want to get back 494 00:25:04,280 --> 00:25:07,320 Speaker 1: to actually, I mean, I thought Tracy's Devil's advocate question 495 00:25:07,440 --> 00:25:10,080 Speaker 1: wasn't really was pretty legitimate. And you know, there is 496 00:25:10,119 --> 00:25:14,479 Speaker 1: this sort of an argument you sometimes hear from certain 497 00:25:14,520 --> 00:25:18,320 Speaker 1: types in DC and never totally bought into the logic. 498 00:25:18,359 --> 00:25:20,119 Speaker 1: But I'm curious your take on it, which is that 499 00:25:20,600 --> 00:25:25,200 Speaker 1: when the FED does things like these extraordinary emergency measures 500 00:25:25,200 --> 00:25:27,199 Speaker 1: in March twenty twenty or in two thousand and nine 501 00:25:27,280 --> 00:25:30,840 Speaker 1: or whatever, that it's kind of bailing out politicians, and 502 00:25:30,880 --> 00:25:33,200 Speaker 1: that the FED should say no, like, if you want 503 00:25:33,240 --> 00:25:36,439 Speaker 1: to have sound cities and states that don't have to 504 00:25:36,480 --> 00:25:39,119 Speaker 1: lay off all your workers, get together and pass a 505 00:25:39,200 --> 00:25:42,679 Speaker 1: law to bail out cities and states or whatever it is. 506 00:25:43,240 --> 00:25:45,879 Speaker 1: Or even you heard this in you know something just 507 00:25:45,920 --> 00:25:49,679 Speaker 1: with rate policy in them in twenty tens, where they're like, no, 508 00:25:49,840 --> 00:25:52,760 Speaker 1: Congress should be using fiscal tools, and if we keep 509 00:25:52,800 --> 00:25:55,399 Speaker 1: cutting rates, that's mostly good for the stock market and 510 00:25:55,440 --> 00:25:57,560 Speaker 1: the ridge, and it's not really great, and the FED 511 00:25:57,560 --> 00:25:59,720 Speaker 1: should say we're not going to just cut rates because 512 00:25:59,760 --> 00:26:01,840 Speaker 1: the Congress won't do his job and pass more pro 513 00:26:01,880 --> 00:26:05,880 Speaker 1: growth policies in your view, like, does that reverse feedback 514 00:26:05,960 --> 00:26:10,280 Speaker 1: mechanism theoretically exists where if a theoretical FED chair wanted 515 00:26:10,359 --> 00:26:13,120 Speaker 1: to say, we are not going to do X because 516 00:26:13,400 --> 00:26:16,880 Speaker 1: we want to force elected officials to do what elected 517 00:26:16,880 --> 00:26:20,920 Speaker 1: officials should do, could it play a role in preventing 518 00:26:21,000 --> 00:26:24,000 Speaker 1: politicians from just sort of passing on these problems to 519 00:26:24,040 --> 00:26:26,639 Speaker 1: this third party. Yeah, you know, I think it's a 520 00:26:26,720 --> 00:26:31,960 Speaker 1: really interesting question. I don't actually think that it has 521 00:26:32,000 --> 00:26:34,399 Speaker 1: a simple answer. Partially because you just talked about a 522 00:26:34,440 --> 00:26:37,520 Speaker 1: lot of different policies and sure should probably have different applications, 523 00:26:37,720 --> 00:26:40,160 Speaker 1: but also just because you know, I think that these 524 00:26:40,920 --> 00:26:43,720 Speaker 1: I think that these issues are probably pretty case by case, 525 00:26:43,800 --> 00:26:46,840 Speaker 1: Like we're working with different congresses, we're working with different 526 00:26:46,840 --> 00:26:50,600 Speaker 1: policy tools, and I do think that that just makes 527 00:26:50,680 --> 00:26:53,639 Speaker 1: things very messy. And I think actually one thing I 528 00:26:53,720 --> 00:26:55,520 Speaker 1: try to communicate in my book, which I think you 529 00:26:55,560 --> 00:26:57,520 Speaker 1: can do pretty nicely in a book in a way 530 00:26:57,520 --> 00:26:59,440 Speaker 1: that you can't necessarily do in a news story or 531 00:26:59,480 --> 00:27:01,959 Speaker 1: anywhere you have to be brief, is a lot of 532 00:27:01,960 --> 00:27:04,720 Speaker 1: these choices are just really different. Like sometimes there are 533 00:27:04,760 --> 00:27:07,640 Speaker 1: no good alternatives if you're the FED, Like what you're 534 00:27:07,640 --> 00:27:10,720 Speaker 1: doing is going to enable some bad behavior by either 535 00:27:10,760 --> 00:27:12,960 Speaker 1: a politician or a market actor. But if you don't 536 00:27:13,000 --> 00:27:15,680 Speaker 1: do it, you risk some pretty serious problems. And I 537 00:27:15,720 --> 00:27:18,800 Speaker 1: think there's no clear rubric sometimes, and I think that's 538 00:27:18,800 --> 00:27:20,680 Speaker 1: really interesting, and I actually think that's a good reason 539 00:27:20,680 --> 00:27:23,040 Speaker 1: to talk about these kinds of responses after they happen 540 00:27:23,359 --> 00:27:25,280 Speaker 1: and sort of plan for them in the future instead 541 00:27:25,320 --> 00:27:28,000 Speaker 1: of waiting and making all of these decisions in a crisis. 542 00:27:28,480 --> 00:27:30,320 Speaker 1: You know, I think it's I think to the extent 543 00:27:30,400 --> 00:27:33,160 Speaker 1: that you can pre plan for this stuff, it could 544 00:27:33,200 --> 00:27:35,439 Speaker 1: make it make those decisions a little bit less at 545 00:27:35,520 --> 00:27:38,439 Speaker 1: hawk when they're happening. Yeah, And it definitely feels like 546 00:27:38,480 --> 00:27:41,399 Speaker 1: it's true that having had the experience of two thousand 547 00:27:41,440 --> 00:27:45,120 Speaker 1: and eight, the FED was better prepared or at least 548 00:27:45,200 --> 00:27:48,359 Speaker 1: more willing to sort of roll out that emergency playbook 549 00:27:48,400 --> 00:27:52,560 Speaker 1: in twenty twenty, which was probably very helpful. Just going 550 00:27:52,560 --> 00:27:55,560 Speaker 1: back to the idea of FED independence versus sort of 551 00:27:55,600 --> 00:28:00,320 Speaker 1: like efficiency and expediency. What should guardrails on the Central 552 00:28:00,320 --> 00:28:04,360 Speaker 1: Bank's power? Actually willk like? Yeah, So I distinctly did 553 00:28:04,359 --> 00:28:06,439 Speaker 1: not take a position on this in this book, because 554 00:28:06,480 --> 00:28:08,399 Speaker 1: you know, I don't think it's my job necessarily as 555 00:28:08,440 --> 00:28:10,840 Speaker 1: a journalist. But I will say I think, you know, 556 00:28:10,920 --> 00:28:14,240 Speaker 1: you hear proposals from a range of experts to study 557 00:28:14,280 --> 00:28:16,640 Speaker 1: this and do have opinions on it that I think 558 00:28:16,640 --> 00:28:19,000 Speaker 1: are interesting to at least talk about. You know, there 559 00:28:19,000 --> 00:28:21,400 Speaker 1: are some people who think that there shouldn't be guardrails 560 00:28:21,400 --> 00:28:23,520 Speaker 1: and that you should actually make more ambitious use of this, 561 00:28:24,000 --> 00:28:25,880 Speaker 1: that you should think more about how to use these 562 00:28:25,880 --> 00:28:29,119 Speaker 1: policies expansively. There are some people who think that you 563 00:28:29,160 --> 00:28:33,800 Speaker 1: should apply more of a sort of formulaic approach to these, 564 00:28:33,880 --> 00:28:36,040 Speaker 1: like there should be some sort of trigger for when 565 00:28:36,080 --> 00:28:39,200 Speaker 1: you use market functioning QWE, for example, is one thing 566 00:28:39,240 --> 00:28:41,240 Speaker 1: I've heard as a proposal. And then there are some 567 00:28:41,280 --> 00:28:43,840 Speaker 1: people who think that there should just be more explicit coordination, 568 00:28:44,280 --> 00:28:47,360 Speaker 1: like something should trigger a moment of coordination between the 569 00:28:47,400 --> 00:28:50,560 Speaker 1: Fiscal Authority and the FED in an even more coordinated 570 00:28:50,600 --> 00:28:53,200 Speaker 1: way than just having a Treasury sign off. You know, 571 00:28:53,360 --> 00:28:55,640 Speaker 1: for example, if the FED is doing market functioning QWE, 572 00:28:55,640 --> 00:28:57,840 Speaker 1: the Treasury should immediately be involved in that. And so 573 00:28:58,040 --> 00:28:59,640 Speaker 1: I think those are some of the things that you'll 574 00:28:59,680 --> 00:29:02,000 Speaker 1: hear people say. I think that, like I said, I 575 00:29:02,000 --> 00:29:04,120 Speaker 1: think this all just deserves a little bit more debate 576 00:29:04,160 --> 00:29:05,960 Speaker 1: than maybe it's gotten in the wake of twenty twenty, 577 00:29:06,000 --> 00:29:09,440 Speaker 1: because these tools are so powerful that it seems likely 578 00:29:09,440 --> 00:29:11,640 Speaker 1: they're going to be used again. Well, you know, we're 579 00:29:11,760 --> 00:29:15,080 Speaker 1: recording this actually on a March seventh, and you know, 580 00:29:15,120 --> 00:29:17,760 Speaker 1: there was just a pull hearing on the Hill and 581 00:29:18,360 --> 00:29:20,880 Speaker 1: some of these questions. It was in front of the Senate, 582 00:29:20,880 --> 00:29:23,440 Speaker 1: and some of these questions came up from both sides, 583 00:29:23,480 --> 00:29:25,760 Speaker 1: but about like climate and the FED and how the 584 00:29:25,800 --> 00:29:29,200 Speaker 1: FED thinks about climate risk. And you have conservatives more 585 00:29:29,320 --> 00:29:31,160 Speaker 1: saying like why should the FED be anywhere in the 586 00:29:31,160 --> 00:29:33,600 Speaker 1: business of anything to do with climate, And then you 587 00:29:33,640 --> 00:29:35,600 Speaker 1: have others it's like, well, climate is a risk to 588 00:29:35,600 --> 00:29:38,160 Speaker 1: the economy, and there are various reasons why climate could 589 00:29:38,280 --> 00:29:41,400 Speaker 1: take part. But again I'm curiously sort of this broader 590 00:29:41,520 --> 00:29:45,000 Speaker 1: question of how much does the FED sort of even 591 00:29:45,040 --> 00:29:47,920 Speaker 1: on these very long sort of like non acute things 592 00:29:48,440 --> 00:29:51,840 Speaker 1: come essentially this like sinc where they into all these 593 00:29:51,840 --> 00:29:56,240 Speaker 1: fights end the becoming FED related because it's really hard 594 00:29:56,240 --> 00:29:58,560 Speaker 1: to pass anything climate related, or it's really hard to 595 00:29:58,560 --> 00:30:01,840 Speaker 1: pass anything related to sort of like a racial justice 596 00:30:02,160 --> 00:30:05,200 Speaker 1: right now, So all of these things become FED issues 597 00:30:05,480 --> 00:30:07,840 Speaker 1: because we have so little hope that Congress can do 598 00:30:07,880 --> 00:30:10,360 Speaker 1: anything about them. Yeah, and I think that they certainly 599 00:30:10,400 --> 00:30:12,800 Speaker 1: have to some degree become FED issues. We certainly talk 600 00:30:12,800 --> 00:30:16,040 Speaker 1: about sort of racial wealth quality, and we certainly talk 601 00:30:16,080 --> 00:30:19,120 Speaker 1: about sort of the climate risks and climate finance in 602 00:30:19,160 --> 00:30:22,080 Speaker 1: the context of the FED. I think the interesting thing, 603 00:30:22,200 --> 00:30:24,120 Speaker 1: I think you kind of alluded it to it earlier, 604 00:30:24,400 --> 00:30:27,120 Speaker 1: is that the FED can't always do so much in 605 00:30:27,160 --> 00:30:29,720 Speaker 1: these domains, and so sometimes I think there is this 606 00:30:29,880 --> 00:30:32,760 Speaker 1: risk that you have a false sense of security where 607 00:30:32,800 --> 00:30:34,800 Speaker 1: you feel like, hey, the FED is kind of on this, 608 00:30:34,920 --> 00:30:38,800 Speaker 1: and actually the tools are just poorly equipped to handle this. 609 00:30:56,440 --> 00:30:59,920 Speaker 1: You know. It's interesting because for all of the expanded 610 00:31:00,120 --> 00:31:03,440 Speaker 1: powers in the new error areas that they've gotten into it, 611 00:31:03,560 --> 00:31:08,400 Speaker 1: each crisis, there does seem to be a pretty deep conservatism, 612 00:31:08,440 --> 00:31:09,920 Speaker 1: and I don't mean it in the right right left 613 00:31:09,960 --> 00:31:14,080 Speaker 1: sense of just a sort of institutional conservatism about just 614 00:31:14,120 --> 00:31:16,520 Speaker 1: going back to like the dual mandate, like two percent 615 00:31:16,560 --> 00:31:20,760 Speaker 1: inflation seems pretty sack or sanct They post twenty ten 616 00:31:20,920 --> 00:31:24,400 Speaker 1: like in this sort of six and a half unemployment. 617 00:31:24,520 --> 00:31:26,800 Speaker 1: Is that full employment? Like six and a half percent 618 00:31:26,840 --> 00:31:30,600 Speaker 1: unemployments pretty high. But you know, some early inclinations that 619 00:31:30,680 --> 00:31:33,760 Speaker 1: maybe that would be enough. Why is that aspect of 620 00:31:33,800 --> 00:31:36,200 Speaker 1: the FED. You know, Janet yell And who I think 621 00:31:36,280 --> 00:31:38,640 Speaker 1: many would consider it to be a sort of devish 622 00:31:38,680 --> 00:31:41,600 Speaker 1: policy maker, never seemed to be particularly comfortable with the 623 00:31:41,600 --> 00:31:43,960 Speaker 1: idea of like letting it run hot at that time. 624 00:31:44,160 --> 00:31:46,720 Speaker 1: Why is that aspect one area in which you don't 625 00:31:46,800 --> 00:31:50,160 Speaker 1: see a particularly like a lot of like a creativity 626 00:31:50,160 --> 00:31:53,920 Speaker 1: about Yeah, So on the inflation side of things, I 627 00:31:53,960 --> 00:31:58,880 Speaker 1: think that we probably were headed in the direction of 628 00:31:58,880 --> 00:32:02,480 Speaker 1: a little bit more creative VI before this episode. Actually, 629 00:32:02,560 --> 00:32:05,720 Speaker 1: you know, they didn't sort of change their inflation target 630 00:32:05,760 --> 00:32:07,040 Speaker 1: in the sense that they made it. They gave it 631 00:32:07,040 --> 00:32:09,360 Speaker 1: a look back period, they made it an average over time. 632 00:32:09,640 --> 00:32:12,600 Speaker 1: I think we're getting like pretty close to that with 633 00:32:12,720 --> 00:32:14,959 Speaker 1: just like actually nudging it up a bit, But we 634 00:32:15,000 --> 00:32:17,400 Speaker 1: didn't get there. They certainly didn't do that. But I 635 00:32:17,480 --> 00:32:19,160 Speaker 1: do think that there was sort of like, you know, 636 00:32:19,600 --> 00:32:21,479 Speaker 1: not a thousand flowers were blooming, but a few more 637 00:32:21,520 --> 00:32:23,960 Speaker 1: flowers were blooming when it came to the inflation target. 638 00:32:24,280 --> 00:32:26,680 Speaker 1: On the employment side of things, I would say that 639 00:32:26,840 --> 00:32:29,920 Speaker 1: they are conservative in the sense that they still think 640 00:32:29,920 --> 00:32:33,040 Speaker 1: about the world through a sort of very Phillip's curve framework. 641 00:32:33,280 --> 00:32:36,240 Speaker 1: Meaning that there's some trade off between employment and inflation. 642 00:32:36,800 --> 00:32:39,600 Speaker 1: But I think that they've become a lot more modest 643 00:32:39,640 --> 00:32:43,680 Speaker 1: about their ability to understand that Philip's curve. And it's 644 00:32:43,680 --> 00:32:46,640 Speaker 1: difficult to say they hear because we're talking about like 645 00:32:48,120 --> 00:32:51,520 Speaker 1: nineteen policymakers, and this applies to each of them a 646 00:32:51,600 --> 00:32:53,960 Speaker 1: little bit differently. Some of them are still pretty devoted 647 00:32:54,360 --> 00:32:56,840 Speaker 1: adherence to the idea that they can specify some sort 648 00:32:56,840 --> 00:32:58,680 Speaker 1: of natural rate of unemployment. But I think a lot 649 00:32:58,680 --> 00:33:02,000 Speaker 1: of them, and including the chair importantly right now, has 650 00:33:02,560 --> 00:33:04,600 Speaker 1: have become a lot more skeptical about the idea that 651 00:33:04,680 --> 00:33:07,960 Speaker 1: you can credibly predict how low unemployment can go without 652 00:33:07,960 --> 00:33:10,280 Speaker 1: causing inflation at any given moment, And so I do 653 00:33:10,360 --> 00:33:13,520 Speaker 1: think some of that conservativism has actually waned with time. 654 00:33:14,360 --> 00:33:17,280 Speaker 1: This episode obviously throws a big rention for that, right. 655 00:33:17,320 --> 00:33:19,760 Speaker 1: I mean, you do get the sense from policymakers now 656 00:33:20,000 --> 00:33:22,320 Speaker 1: they are more open about saying like, well, maybe there 657 00:33:22,400 --> 00:33:25,600 Speaker 1: is something particularly about inflation that we are missing here, 658 00:33:25,640 --> 00:33:27,200 Speaker 1: and I think we've had one or two people on 659 00:33:27,280 --> 00:33:30,200 Speaker 1: the show who've talked openly about that. But this actually 660 00:33:30,280 --> 00:33:32,320 Speaker 1: leads into something else I want to ask you, which 661 00:33:32,360 --> 00:33:36,840 Speaker 1: is with that realization that perhaps there's something about the 662 00:33:36,880 --> 00:33:40,480 Speaker 1: Phillips curve that's changed or that we don't fully understand 663 00:33:40,520 --> 00:33:45,400 Speaker 1: as policymakers. And also with the evolution of the fed's 664 00:33:45,520 --> 00:33:49,400 Speaker 1: role in the financial system and markets. How do FED 665 00:33:49,440 --> 00:33:54,000 Speaker 1: officials themselves feel about this? Presumably you talk to current 666 00:33:54,240 --> 00:33:58,239 Speaker 1: and former ones. How do they explain it and how 667 00:33:58,320 --> 00:34:00,640 Speaker 1: do they talk about it? Yes, so I think a 668 00:34:00,680 --> 00:34:02,720 Speaker 1: lot of times when you talk to FED officials about this, 669 00:34:02,800 --> 00:34:06,240 Speaker 1: you will hear some amount of concern actually that if 670 00:34:06,280 --> 00:34:08,399 Speaker 1: you ask the FED to do too much, it won't 671 00:34:08,400 --> 00:34:11,359 Speaker 1: be able to do anything well. So I do think 672 00:34:11,440 --> 00:34:13,600 Speaker 1: that that is a thing that they're very attuned too, 673 00:34:13,680 --> 00:34:15,759 Speaker 1: and that's I mean, it's not a huge surprise. I 674 00:34:15,800 --> 00:34:17,400 Speaker 1: think they kind of gave us some hints of that 675 00:34:17,440 --> 00:34:19,840 Speaker 1: and sort of that twenty fifteen hiking cycle that you 676 00:34:19,840 --> 00:34:23,560 Speaker 1: were previously talking about when Congress just wasn't passing anything 677 00:34:23,600 --> 00:34:25,879 Speaker 1: to help the economy along, and you know, you would 678 00:34:25,880 --> 00:34:27,920 Speaker 1: hear FED officials occasionally say that out loud. But I 679 00:34:27,920 --> 00:34:29,880 Speaker 1: think after twenty twenty, I think there was still some 680 00:34:29,920 --> 00:34:31,879 Speaker 1: feeling that you just don't want to push too much 681 00:34:31,920 --> 00:34:34,239 Speaker 1: on the FED. Not everything should be the Fed's job. 682 00:34:34,800 --> 00:34:36,759 Speaker 1: I do think when it comes to sort of the 683 00:34:37,600 --> 00:34:40,400 Speaker 1: framework and the how do you think about the economy 684 00:34:40,440 --> 00:34:42,840 Speaker 1: in this brand new world, I think the you know, 685 00:34:42,840 --> 00:34:45,120 Speaker 1: the jury is just not out yet. They're they're still 686 00:34:45,120 --> 00:34:47,600 Speaker 1: trying to figure out what went wrong in twenty twenty 687 00:34:47,600 --> 00:34:49,479 Speaker 1: and twenty twenty one, and they're still trying to figure 688 00:34:49,520 --> 00:34:51,759 Speaker 1: out what's what's going wrong now because they don't seem 689 00:34:51,800 --> 00:34:53,600 Speaker 1: to be getting this inflation under control as quickly as 690 00:34:53,640 --> 00:34:55,600 Speaker 1: they had expected to. I think so, I think it's 691 00:34:55,680 --> 00:34:58,880 Speaker 1: just a situation in flux. How much of the rapid 692 00:34:59,440 --> 00:35:02,160 Speaker 1: movement and it was like basically day after day in 693 00:35:02,600 --> 00:35:06,480 Speaker 1: early twenty twenty, their ability to roll out these new programs. 694 00:35:06,480 --> 00:35:10,680 Speaker 1: How much easier was that because of scaffolding basically that 695 00:35:10,760 --> 00:35:12,360 Speaker 1: was built in two thousand and eight and two thousand 696 00:35:12,360 --> 00:35:14,239 Speaker 1: and nine, And how much specifically the work of like 697 00:35:14,640 --> 00:35:19,080 Speaker 1: Brunankee work with Geitner, et cetera, enabled Powell and Manuchin 698 00:35:19,200 --> 00:35:21,759 Speaker 1: together to move as fast as they did. So I 699 00:35:21,800 --> 00:35:23,719 Speaker 1: think that there I'm actually gonna give a two part 700 00:35:23,719 --> 00:35:27,040 Speaker 1: answer to Okay, Part one is definitely the scaffold. Scaffolding 701 00:35:27,040 --> 00:35:29,440 Speaker 1: mattered a lot a They kind of had a pattern 702 00:35:29,480 --> 00:35:32,160 Speaker 1: for how this could work, and B they had some 703 00:35:32,200 --> 00:35:35,279 Speaker 1: ability to not make the mistakes that happened in two 704 00:35:35,320 --> 00:35:37,719 Speaker 1: thousand and eight, Like, for example, they kept better track 705 00:35:37,760 --> 00:35:40,200 Speaker 1: of these programs and were very transparent about them. They 706 00:35:40,400 --> 00:35:42,160 Speaker 1: told us what they were buying, not at a five 707 00:35:42,239 --> 00:35:46,000 Speaker 1: year leg but just immediately. And B they got congressional 708 00:35:46,040 --> 00:35:48,440 Speaker 1: backstop for every single one of the programs that mattered. 709 00:35:48,520 --> 00:35:50,920 Speaker 1: Like it wasn't like what I described earlier in two 710 00:35:50,920 --> 00:35:53,160 Speaker 1: thousand and eight when they used private sector money to 711 00:35:53,160 --> 00:35:55,000 Speaker 1: set up the TAF And I think the reason they 712 00:35:55,040 --> 00:35:56,440 Speaker 1: did that is because they thought that there was some 713 00:35:56,480 --> 00:36:00,759 Speaker 1: sort of democratic legitimacy to having that sort of you know, buy, 714 00:36:00,800 --> 00:36:02,880 Speaker 1: and also it's easier. It was like an easier setup. 715 00:36:03,000 --> 00:36:05,839 Speaker 1: But I do think the democratical legitimacy part mattered there, 716 00:36:06,239 --> 00:36:08,040 Speaker 1: and so I think we learned a lot of lessons 717 00:36:08,040 --> 00:36:11,000 Speaker 1: from two thousand and eight. Part B, though, I would say, 718 00:36:12,080 --> 00:36:14,319 Speaker 1: is while they learned a lot of lessons in the 719 00:36:14,320 --> 00:36:16,719 Speaker 1: scaffolding mattered, they had to set up a bunch of 720 00:36:16,719 --> 00:36:18,920 Speaker 1: new programs that they had never seen, never tried before, 721 00:36:19,080 --> 00:36:22,960 Speaker 1: municipal main street lending, etc. Etc. And I also think 722 00:36:23,000 --> 00:36:25,920 Speaker 1: that they had really not been anticipating that they were 723 00:36:25,920 --> 00:36:27,400 Speaker 1: ever going to have to use the two thousand and 724 00:36:27,400 --> 00:36:31,600 Speaker 1: eight programs again, for example money market mutual fund program 725 00:36:31,640 --> 00:36:34,359 Speaker 1: that took ton of effort, a lot of late nights, 726 00:36:34,400 --> 00:36:36,839 Speaker 1: a lot of huge scrambling to get set up because 727 00:36:36,840 --> 00:36:38,960 Speaker 1: they just money markets had changed so much in the 728 00:36:38,960 --> 00:36:41,719 Speaker 1: interroom and they hadn't really like been keeping up with it. 729 00:36:41,760 --> 00:36:44,440 Speaker 1: Like there was no design ready to roll off the 730 00:36:44,480 --> 00:36:47,080 Speaker 1: counter for this program, and so it did require a 731 00:36:47,080 --> 00:36:51,239 Speaker 1: lot of last minute sort of legal legal you know, finessing. 732 00:36:51,960 --> 00:36:55,759 Speaker 1: You know, looking forward. Obviously there's always people complaining about 733 00:36:55,760 --> 00:36:58,759 Speaker 1: the FED from everyone. Go that's not new years ago. 734 00:36:58,800 --> 00:37:00,840 Speaker 1: You know, you've had this sort of like abolish the 735 00:37:00,880 --> 00:37:05,319 Speaker 1: FED types, audit the FED types, various attacks on it 736 00:37:05,400 --> 00:37:07,800 Speaker 1: from different angles. But it more or less like seems 737 00:37:07,840 --> 00:37:10,719 Speaker 1: to operate and buy and large. I get impression that 738 00:37:10,840 --> 00:37:14,560 Speaker 1: politicians have other things to worry about that or you know, 739 00:37:14,600 --> 00:37:17,440 Speaker 1: the play better on TV than like, you know, the 740 00:37:17,520 --> 00:37:21,600 Speaker 1: arrangement of monetary policy. Do you perceive any change to 741 00:37:21,719 --> 00:37:26,200 Speaker 1: the trajectory of the FED either your institutional setup. I mean, 742 00:37:26,320 --> 00:37:29,560 Speaker 1: it seems like this sustained period of high inflation maybe 743 00:37:29,600 --> 00:37:33,840 Speaker 1: not great for the FED standing within politics within DC, 744 00:37:34,400 --> 00:37:37,839 Speaker 1: but do you see any like real threats or on 745 00:37:37,880 --> 00:37:41,760 Speaker 1: the horizon to the sort of modus operanda of monetary 746 00:37:41,760 --> 00:37:45,120 Speaker 1: policy in this country. Yeah, so I think actually A, 747 00:37:45,440 --> 00:37:47,799 Speaker 1: I think the sort of little c conservativism that you 748 00:37:47,800 --> 00:37:50,480 Speaker 1: were talking about earlier helps them a little bit in 749 00:37:50,480 --> 00:37:52,960 Speaker 1: this regard. I think when you're like boring, when you 750 00:37:52,960 --> 00:37:55,120 Speaker 1: just bore people to death, it makes them less likely 751 00:37:55,239 --> 00:37:56,920 Speaker 1: that they are going to come and meddle with your 752 00:37:56,960 --> 00:37:59,839 Speaker 1: Federal Reserve Act. So I think that's useful. I do, 753 00:38:00,000 --> 00:38:01,440 Speaker 1: and I talk about this a bit in the book. 754 00:38:01,560 --> 00:38:03,560 Speaker 1: I do think that there are a couple of things 755 00:38:03,719 --> 00:38:06,680 Speaker 1: we should pay attention to here, though. One of them 756 00:38:06,920 --> 00:38:09,760 Speaker 1: is I just think that the elected government has become 757 00:38:09,840 --> 00:38:12,400 Speaker 1: so much more aware of what the FED is capable 758 00:38:12,440 --> 00:38:14,880 Speaker 1: of and what it can do with some of its powers, 759 00:38:15,000 --> 00:38:17,759 Speaker 1: both the emergency lending powers and just bond buying, which 760 00:38:17,760 --> 00:38:19,880 Speaker 1: has become much more passe than it used to be. 761 00:38:20,400 --> 00:38:22,680 Speaker 1: And I think that you have to keep an eye 762 00:38:22,719 --> 00:38:24,680 Speaker 1: on what kind of appointments are being made to the 763 00:38:24,719 --> 00:38:27,560 Speaker 1: Fed's board in Washington. The board is so powerful, The 764 00:38:27,600 --> 00:38:30,400 Speaker 1: board does so much of what the FED does, and 765 00:38:30,560 --> 00:38:34,120 Speaker 1: it's presidentially appointed people, and it turns over relatively quickly. 766 00:38:34,160 --> 00:38:36,759 Speaker 1: They're very long terms, but people don't typically stay in 767 00:38:36,800 --> 00:38:38,680 Speaker 1: them for the long terms, and so you often have 768 00:38:38,719 --> 00:38:43,080 Speaker 1: a situation where it's relatively politically lined up in one direction, 769 00:38:43,520 --> 00:38:46,759 Speaker 1: and it's got all these powers can potentially have a 770 00:38:46,840 --> 00:38:49,399 Speaker 1: partisan lean, And I just think that given how much 771 00:38:49,400 --> 00:38:52,400 Speaker 1: power this institution has, that's something to be very aware of. 772 00:38:52,480 --> 00:38:55,200 Speaker 1: And I think it's something to make sure elected officials 773 00:38:55,239 --> 00:38:59,800 Speaker 1: are focused on appointing nonpartisans to the degree possible and 774 00:39:00,000 --> 00:39:03,799 Speaker 1: feasible in a very partisan world. It is interesting talking 775 00:39:03,800 --> 00:39:06,760 Speaker 1: about like the conservatism. Even the presidents of both parties 776 00:39:06,800 --> 00:39:09,439 Speaker 1: seemed to be conservative in their picks, Like other than 777 00:39:09,920 --> 00:39:14,400 Speaker 1: Trump's failed nomination of Judy Shelton, most of his names 778 00:39:14,400 --> 00:39:17,840 Speaker 1: were like pretty conventional, okay, But I think you just can't. 779 00:39:17,880 --> 00:39:20,160 Speaker 1: I feel like this is a thing that often happens 780 00:39:20,160 --> 00:39:22,120 Speaker 1: in the media and we just pretend like the Judy 781 00:39:22,160 --> 00:39:26,759 Speaker 1: Shelton nomination didn't happen and didn't almost get confirmed right, 782 00:39:26,800 --> 00:39:28,879 Speaker 1: like I think because there was there were some really 783 00:39:28,920 --> 00:39:32,880 Speaker 1: interestings there where they were like just scrapped immediately, like 784 00:39:33,040 --> 00:39:35,879 Speaker 1: Steve Moore was not going to realistically get this job. 785 00:39:35,880 --> 00:39:37,799 Speaker 1: I mean, I think it's highly likely at some point 786 00:39:37,880 --> 00:39:40,680 Speaker 1: the culture wars come to the FED. Yeah, And I 787 00:39:40,680 --> 00:39:43,960 Speaker 1: mean you've seen it with the ESG space and investing 788 00:39:44,040 --> 00:39:46,080 Speaker 1: like it. To me, it's just a matter of time. 789 00:39:46,400 --> 00:39:48,960 Speaker 1: And the way they came for the Supreme Court, you know, 790 00:39:49,000 --> 00:39:51,719 Speaker 1: I think we're in a place with the FED that 791 00:39:51,960 --> 00:39:54,840 Speaker 1: you I think the Supreme Court is the right analogy 792 00:39:54,880 --> 00:39:57,000 Speaker 1: to years. You know, it used to be treated in 793 00:39:57,040 --> 00:39:59,600 Speaker 1: a very different way, not by any sort of legal 794 00:39:59,640 --> 00:40:01,879 Speaker 1: require ronment, just because that's the way we thought about 795 00:40:01,880 --> 00:40:04,400 Speaker 1: the Court. And we're at that stage now where we 796 00:40:04,400 --> 00:40:06,560 Speaker 1: treat the FED a certain way, not because of any 797 00:40:06,640 --> 00:40:09,120 Speaker 1: legal requirement, just because that's how we think about the FED. 798 00:40:09,560 --> 00:40:11,680 Speaker 1: And I think it's just a thing to be aware of. 799 00:40:11,800 --> 00:40:13,719 Speaker 1: You wouldn't want this power to go partisan, because they 800 00:40:13,880 --> 00:40:17,160 Speaker 1: go partisan in both ways. Can I just exactly my point? Yes, 801 00:40:17,200 --> 00:40:20,000 Speaker 1: I totally. Can I just say, we have these monitors 802 00:40:20,000 --> 00:40:22,799 Speaker 1: in the studio of like different TV networks and I 803 00:40:22,840 --> 00:40:24,680 Speaker 1: just saw Larry Cudlow in one of the screens and 804 00:40:24,719 --> 00:40:28,359 Speaker 1: I thought about, like FED Governor Larry Pudlow one day, 805 00:40:28,440 --> 00:40:30,799 Speaker 1: No against Larry, but you know it's like future like 806 00:40:30,880 --> 00:40:32,880 Speaker 1: I don't know, probably not at this point, but it 807 00:40:33,000 --> 00:40:35,840 Speaker 1: is sort of funny to think about. That's like most 808 00:40:35,880 --> 00:40:39,160 Speaker 1: of the names other than Shelton that have ever been nominated, 809 00:40:39,160 --> 00:40:42,560 Speaker 1: you don't associate too strongly with like one party. But 810 00:40:42,560 --> 00:40:46,560 Speaker 1: but you know, the other time, Joe, the other screen 811 00:40:46,719 --> 00:40:50,840 Speaker 1: is to Santis touts culture war priorities in Florida's speech, 812 00:40:51,040 --> 00:40:53,399 Speaker 1: So you know, there you go. It's a it's a 813 00:40:53,400 --> 00:40:56,320 Speaker 1: sign of what's coming, solely a matter of time. Gena Smilok, 814 00:40:56,560 --> 00:40:59,000 Speaker 1: thank you so much. Congrats on the book, and really 815 00:40:59,000 --> 00:41:15,520 Speaker 1: appreciate you coming on, Odlum, thank you having me, Tracy. 816 00:41:15,600 --> 00:41:19,160 Speaker 1: I really enjoyed that conversation. I thought that last point 817 00:41:19,280 --> 00:41:22,480 Speaker 1: in particular, that like what we've seen with the Supreme Court, 818 00:41:22,600 --> 00:41:25,840 Speaker 1: because like obviously, like you know, presidents have always applyned 819 00:41:25,920 --> 00:41:28,839 Speaker 1: more liberal or conservatives, but also like now you don't 820 00:41:28,880 --> 00:41:31,360 Speaker 1: expect to get any votes from the other party for 821 00:41:31,480 --> 00:41:34,680 Speaker 1: your nomination, etc. Like we haven't quite seen that it 822 00:41:34,719 --> 00:41:37,320 Speaker 1: happened with the figuet, but it's almost like, how is 823 00:41:37,360 --> 00:41:40,520 Speaker 1: it going to avoid It seems highly unlikely to me 824 00:41:40,760 --> 00:41:45,280 Speaker 1: that this like very powerful group of technocrats is somehow 825 00:41:45,320 --> 00:41:48,680 Speaker 1: going to be immune to the intense politicization that we've 826 00:41:48,719 --> 00:41:52,360 Speaker 1: seen of literally everything else in the past few years. 827 00:41:52,719 --> 00:41:54,759 Speaker 1: So that's point one. But I also thought Gina made 828 00:41:54,760 --> 00:41:57,160 Speaker 1: a really good point about you know, there is all 829 00:41:57,160 --> 00:42:01,120 Speaker 1: this criticism of the FED, often for just defied reasons, 830 00:42:01,239 --> 00:42:04,800 Speaker 1: and to some extent, it has been accumulating all these 831 00:42:05,000 --> 00:42:10,200 Speaker 1: new powers and abilities that it hasn't been explicitly designated 832 00:42:10,280 --> 00:42:13,919 Speaker 1: to have, at least by voters. But also sometimes it's 833 00:42:13,960 --> 00:42:18,480 Speaker 1: making the tough choices and sometimes there aren't great outcomes. Yep, no, 834 00:42:18,640 --> 00:42:20,799 Speaker 1: and just as ideal, Like I keep thinking of it 835 00:42:20,840 --> 00:42:23,839 Speaker 1: as like it's independent in the sense that, okay, it's 836 00:42:23,840 --> 00:42:26,600 Speaker 1: supposed to be sort of immune from partisan politics and 837 00:42:26,920 --> 00:42:29,879 Speaker 1: make hard decisions and do the tough thing, and that's 838 00:42:29,960 --> 00:42:32,200 Speaker 1: an element. But then there's also these sort of like 839 00:42:32,320 --> 00:42:36,920 Speaker 1: operational independent one entity in DC that does not have 840 00:42:37,040 --> 00:42:39,200 Speaker 1: to like, you know, always go for a vote or 841 00:42:39,200 --> 00:42:42,439 Speaker 1: come to for reelection or whatever. And as it gets 842 00:42:42,440 --> 00:42:44,600 Speaker 1: harder and harder to pass anything in DC, and I 843 00:42:44,640 --> 00:42:47,879 Speaker 1: don't think many people expect that trajectory to change, then 844 00:42:47,920 --> 00:42:50,120 Speaker 1: everyone's like, oh, you guys, you guys don't have to 845 00:42:50,120 --> 00:42:52,520 Speaker 1: worry about the politics that we do. So you're totally right. 846 00:42:52,600 --> 00:42:54,680 Speaker 1: And I think when you use I think you were 847 00:42:54,680 --> 00:42:57,360 Speaker 1: as you use the word sink, right, it's like a 848 00:42:57,400 --> 00:42:59,719 Speaker 1: sink for things that can't get done in Washington, and 849 00:42:59,760 --> 00:43:03,200 Speaker 1: that that is true, and it has been helpful at times. 850 00:43:03,560 --> 00:43:05,759 Speaker 1: But the more it does that, I think, the more 851 00:43:05,800 --> 00:43:08,520 Speaker 1: attention it's going to garner, and the more it becomes 852 00:43:08,520 --> 00:43:10,800 Speaker 1: a target totally, and the more partisan it will become, 853 00:43:10,840 --> 00:43:13,120 Speaker 1: and the more people will be really focused on. Okay, 854 00:43:13,120 --> 00:43:16,880 Speaker 1: but what is your stands on the Fed's role in 855 00:43:17,040 --> 00:43:20,600 Speaker 1: funding climate ceter like? These kinds of things, they'll inevitably 856 00:43:20,600 --> 00:43:22,359 Speaker 1: get more heightened and then you'll have more of those 857 00:43:22,400 --> 00:43:26,400 Speaker 1: fifty one and forty nine nomination votes and things like that. Yeah, 858 00:43:26,440 --> 00:43:28,919 Speaker 1: on that happy note, shall we leave it there? Let's 859 00:43:28,960 --> 00:43:31,480 Speaker 1: leave it there. Okay. This has been another episode of 860 00:43:31,560 --> 00:43:34,280 Speaker 1: the Old Thoughts podcast. I'm Tracy Alloway. You can follow 861 00:43:34,320 --> 00:43:36,880 Speaker 1: me on Twitter at Tracy Alloway and I'm Joe Why 862 00:43:36,920 --> 00:43:39,680 Speaker 1: Isn't Thal? You can follow me on Twitter at the Stalwart. 863 00:43:40,080 --> 00:43:43,760 Speaker 1: Follow Gina on Twitter Gina Smileock. She's at Gina Smilek, 864 00:43:43,840 --> 00:43:46,880 Speaker 1: and check out her new book, Limitless. The Federal Reserve 865 00:43:46,920 --> 00:43:50,640 Speaker 1: takes on a new age of crisis. Follow our producers 866 00:43:50,719 --> 00:43:54,800 Speaker 1: Carmen Rodriguez at rman Armin and Dash Bennett at Dashbot. 867 00:43:54,840 --> 00:43:57,520 Speaker 1: And check out all of our podcasts Bloomberg under the 868 00:43:57,560 --> 00:44:01,080 Speaker 1: handle at podcasts and from or odd Lots content. Go 869 00:44:01,120 --> 00:44:04,640 Speaker 1: to Bloomberg dot com slash odd Lots, where we post transcripts, 870 00:44:04,680 --> 00:44:07,080 Speaker 1: Tracing I blog, and we have a newsletter that comes 871 00:44:07,080 --> 00:44:10,520 Speaker 1: out every Friday. Go there and sign up. Thanks for listening.