Unpacking the Fed
An insider-y but layman-friendly look at U.S. monetary policy
I used to think digital money is harder to understand than the old-fashioned kind. But that was wrong. It’s just harder to take for granted as a feature of everyday life.
To put it a different way, most of the perfectly reasonable questions people tend to ask about cryptocurrencies could also be posed regarding the dollar. (Or the euro or yen or peso or whatever.) We just tend not to do that.
What backs this thing? Who gets to print it? What if they create more? How do you secure it? What makes it valuable?
Bitcoiner Peter McCormack just evened the scales a bit with an excellent podcast interview of Joseph Wang, a former bond trader for the Federal Reserve.
In essence, Wang was one of the people who actually implements the U.S. central bank’s monetary policy for the dollar, expressed in the periodic interest-rate decisions that get so much press coverage.
However you feel about bitcoin, this episode is an excellent overview of how the dollar actually works. Wang also drops a few eyebrow-raising remarks about the current state of the economy and the Fed.
Some highlights with approximate timestamps:
- Around 22:00: When asked what caused heavy inflation the last few years, Wang is blunt: “I think it’s actually super easy. We gave everybody a whole bunch of free money. What did you think would happen?”
- Around 33:00: Wang says he is bearish on the global economy over the next decade or so, with the potential for 1970s-style “roller coaster” inflation.
- Around 47:25: Wang rejects McCormack’s suggestion that the Fed should be abolished. He says it could use some reforms, yes, and he’s also critical of fiscal management by Congress and the White House. But he says we do ultimately need the Fed in some form, at least to prevent financial panics akin to the ones in the 19th century.
- Around 53:30: Wang calls the prospect of an official digital dollar a “terrifying prospect” due to the privacy implications. He says he believes Fed Chairman Jerome Powell isn’t keen on the idea and won’t implement a digital dollar unless Congress passes a law requiring him to.
I have to say, it is pretty rare to encounter someone with this level of experience who’s also able to explain how the Fed works in such a layman-friendly way.
If you want to delve deeper, Wang has written a book titled Central Banking 101. He also runs a subscription-based blog at FedGuy.com.
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