The Lords of Easy Money: How the Federal Reserve Broke the American Economy.

• Author: White, Lawrence H.

The Lords of Easy Money: How the Federal Reserve Broke the American Economy.

By Christopher Leonard

New York: Simon and Schuster, 2022.

Pp. viii, 373, $30 hardcover.

Author Christopher Leonard is a journalist, not an economist. Not surprisingly, the value of The Lords of Easy Money lies mostly in its behind-the-scenes accounts of how monetary policy was made over the last twelve years and not in its layman's theory of how the macroeconomy works or in its narrative macroeconomic history. Nonetheless, from talking to practitioners, Leonard has gotten hold of an important insight. Artificially cheap credit has encouraged and financed unsustainable investment booms: "Asset inflation was the force behind the dot-com crash of 2000, the housing market crash of 2008, and the unprecedented market crash of 2020 ... The Federal Reserve can stoke asset inflation when it keeps money too cheap for too long" (p. 54). Leonard draws no direct inspiration from Austrian business cycle theory, and indirectly indicates that his own political views are those of a New Deal Democrat.

The book has many technical errors that will annoy specialists in monetary economics. For example, the word dollar is not, in fact, "just a slang term for American currency" (p. 4). It is neither slang (being an official term), nor specifically American (the Spanish silver dollar long predated the U.S. dollar), nor does it designate only currency (most dollars today are in deposit form). It is inaccurate to say that when the Fed expands the monetary base it "makes new dollars and deposits them in the vaults of big banks" (p. 6). The primary dealers from whom the Fed makes open market purchases are not banks, and the assets that the Fed gets are securities, not deposits. Leonard repeats the myth that America's "free banking" era "was lunacy" and "a disaster" because "things can't work without a central bank" (p. 45). In fact, free banking systems without central banks have been quite successful. In providing a potted history of the Federal Reserve Act, Leonard cites William Greider's Secrets of the Temple rather than any works by reputable economic historians. Assets pledged as collateral for a bank loan do not appear on the bank's books (p. 50). Banks write down the book value of bad loans, not the value of the collateral (p. 57). Deflation of the price level is not ipso facto "a suffocating death spiral for any economy" (p. 223). It can instead serve as a conduit for improving real...