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Hollywood’s Monetary Policy

A Book Review of The Lords of Easy Money: How the Federal Reserve Broke the American Economy, by Christopher Leonard.1

Many great movies are “based…



  • A Book Review of The Lords of Easy Money: How the Federal Reserve Broke the American Economy, by Christopher Leonard.1

Many great movies are “based on a true story”—meaning some parts are true, but the details, even entire plotlines, are embellished with what is sometimes called “poetic license.”

Though it’s not on the big screen (yet), Christopher Leonard’s The Lords of Easy Money: How the Federal Reserve Broke the American Economy is the Hollywood version of monetary policy. Leonard explains the Federal Reserve’s activities with an engaging narrative that exposes many difficulties of setting monetary policy as well as the dangerous consequences when those policies are wrong. To do that, however, the author shoehorns complex economic issues into a simple storyline that gives many false impressions about the monetary and financial system.

Thomas Hoenig plays the hero in this story. During his time at the Federal Reserve Bank of Kansas City in the 1970s and1980s, Hoenig witnessed banks expand their risky lending based on inflated prices and overly optimistic projections. By 1991, he rose to become the president of the regional reserve bank and served on the Federal Open Market Committee (FOMC), which decides the Fed’s monetary policy. Hoeing was later named vice chairman of the Federal Deposit Insurance Corporation (FDIC) where he championed stricter regulations for United States banks.

Current Federal Reserve Chair Jerome Powell, who began his career as a corporate attorney and investment banker before moving into private equity with the prestigious Carlyle Group, is cast as the villain. Leonard focuses on Powel’s work with the corporation Rexnord, which, in Leonard’s telling, was pushed to repeatedly increase leverage and cut costs until it was forced to lay off part of its United States workforce and move operations to a plant in Mexico. Leonard also documents Powell’s transition from a Fed Governor and an early critic of the first quantitative easing (QE) program to becoming the main advocate of such policies in his role as Fed chair since 2018.

The main focus of Lords of Easy Money is the Fed’s role in directing—or misdirecting—credit. As an independent central bank, the Fed’s objective is, or at least should be, to support the needs of trade and the financial system rather than influencing where funds are channeled and invested. Leonard explains in detail how excessively expansionary policy—particularly the massive monetary injections under QE—can seep into overleveraged financial markets, driving asset price inflation, reach for yield, and excessive risk taking.

The core of the book is dedicated to exposing the repeated cycle of the Fed driving financial risk through easy credit conditions and the buildup of risks across the entire financial system until the economy crashes into recession. Leonard blames Fed policy for a variety of economic and social ills, including an increasingly fragile financial system, heightened income inequality, even the off-shoring of manufacturing—an ongoing trend since the 1970s.

“While we should surely be wary of Fed-induced risk taking and credit misallocation, I’m skeptical that this was a major problem in the QE period.”

What is fact versus fiction in this story? While we should surely be wary of Fed-induced risk taking and credit misallocation, I’m skeptical that this was a major problem in the QE period. Yes, the Fed created unprecedented trillions in new base money from 2008 to 2014. But the book barely touches on the most significant change ever in the Fed’s monetary policy: its transition from a corridor system of monetary policy to a floor system when it began paying interest on the excess reserves (IOER) that banks held at the Fed.

Because the Fed was paying banks interest to hold reserves, the vast majority of money created by QE was left sitting on bank balance sheets rather than being lent out into the economy. While this topic remains divisive among economists, my recent paper in the Journal of Macroeconomics2 finds that the Fed’s payment of IOER caused banks to reduce their lending, likely stunting the effects of QE. Rather than driving risk-taking in the financial system, the banks held onto the newly-created, ultra-safe base money because the Fed was paying them to do so.

Could the new money added by QE have led to asset price inflation in the broader financial system? Perhaps, but this seems unlikely. Consumer price inflation repeatedly undershot the Fed’s two percent target for almost an entire decade. The Fed could have done more QE, but it probably could have achieved its target by doing less QE if it had lowered the rate of IOER, which was set higher than short-term market interest rates for most of the period. Leonard doesn’t say how to identify asset price inflation, but the combination of below-target consumer price inflation, reduced lending, and higher-than-market rates of IOER seems to indicate that money was—if anything—too tight in this period, so it was probably not driving a major price bubble in financial assets.

This criticism is especially true of the Great Recession of 2007-2009. As Scott Sumner has thoroughly exposed, the major contraction in 2008 resulted from excessively tight, not loose, monetary policy. Hoenig and a few other FOMC members vocally opposed monetary expansion. They even proposed raising interest rates during this period. This opposition inhibited the Fed’s monetary expansion, which almost certainly increased the severity of the recession. So while excessively loose monetary policy can indeed be a problem, it doesn’t appear to have been an issue in 2008 or the decade that followed. Of course, an enlarged Fed balance sheet can also lead to credit misallocation, as George Selgin has dubbed “Fiscal QE,” just not in the way described in the book.

The dangers of resource misallocation and heightened financial risk seem more plausible in the recent QE period starting in 2020. High inflation has made appropriate risk analysis more difficult. The Fed kept interest rates near zero despite the highest inflation in 40 years and nearly the lowest unemployment rates since World War II. Fed officials failed to act to curtail its monetary stimulus and ignored the warning signs of high inflation. Only time will tell if Fed policy has, in fact, created the negative effects discussed by Leonard such as excessive leverage and increased financial fragility.

Aside from monetary policy, the book discusses how Fed officials came under great political pressure during the coronavirus pandemic. The Fed coordinated with the Treasury on its monetary policy and lending programs, which, in conjunction with the Coronavirus Aid, Recover, and Economic Security (CARES) Act, allowed it to go far beyond its normal emergency lending role.

The Fed provided funds to nonbank companies and state and local governments, things former Fed Chairs Ben Bernanke and Janet Yellen said the Fed should never do. In contrast, Chair Powell promised the Fed would do “whatever it takes” to support the economy. Fed officials have bowed to political pressure to pursue climate and social goals that are clearly outside its legal mandate.3

Another thing the book gets right is Hoenig’s criticism of the complexity of Unite bank capital regulations. Like a complex tax code, complex regulations allow banks to evade the burden or regulation. Because regulators cannot perfectly identify the riskiness of every asset, complexity can encourage banks to take more risk than they normally would. These rules incentivized banks to increase their holdings of highly rated MBSs and credit default obligations (CDOs) leading up to the 2008 financial crisis.

Studies by researchers from the Bank of England, the World Bank and International Monetary Fund (IMF), and even the Federal Reserve Bank of New York have all found that complex regulations are not better predictors of bank risk than simple measures such as the equity capital ratio. Complex regulations have large costs and small (possibly negative) benefits.4

There are important lessons to be learned, and even readers who are already skeptical of the Fed will appreciate the thoroughness of Leonard’s explanations. Unfortunately, many “facts” and economic explanations in the book are either inadequately explained or just plain wrong. There are many minor errors and misrepresentations. Leonard’s critiques often are politically one-sided. He regularly calls for government intervention, but he generally fails to recognize government as the source of such problems or that private entrepreneurs might provide superior solutions.

For more on these topics, see

It’s possible that Leonard is right about the extent of asset price inflation. Alas, the high number of factual errors in the book make it difficult to evaluate his claims. He provides little evidence that monetary policy has caused higher income inequality, lower economic productivity, or changes in manufacturing technology—all of which seem to be mostly caused by nonmonetary factors.

Lords of Easy Money provides a gripping introduction to the dangers of faulty monetary policy, but readers should be skeptical of the Hollywood version. Should we be critical of Fed policy? Yes. Should we worry about resource misallocation and excessive financial risk? Absolutely. Should we blame every economic problem (real and imagined) on the Fed? As Tom Hoenig would say, “Respectfully, no.”


[1] Christopher Leonard, The Lords of Easy Money: How the Federal Reserve Broke the American Economy. Simon and Schuster, 2022.

[2] Thomas Hogan, “Bank lending and interest on excess reserves: An empirical investigation,” Journal of Macroeconomics. Volume 69, September 2021.

[3] Thomas Hogan, “The Renewed Politicization of the Federal Reserve,” American Institute for Economic Research, May 5, 2022.

[4] Thomas Hogan, A Review of the Regulatory Impact Analysis of Risk-Based Capital and Related Liquidity Rules,” Journal of Risk and Financial Management. Volume 14(1), September 2020.

*Thomas L. Hogan is a senior research faculty member at the American Institute for Economic Research. He was formerly the chief economist for the United States Senate Committee on Banking, Housing, and Urban Affairs.

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Watch Yield Curve For When Stocks Begin To Price Recession Risk

Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices…



Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices are currently diverging from recessionary leading economic data. However, a decisive steepening in the yield curve leaves growth stocks and therefore the overall index facing lower prices.

Leading economic data has been signalling a recession for several months. Typically stocks closely follow the ratio between leading and coincident economic data.

As the chart below shows, equities have recently emphatically diverged from the ratio, indicating they are supremely indifferent to very high US recession risk.

What gives? Much of the recent outperformance of the S&P has been driven by a tiny number of tech stocks. The top five S&P stocks’ mean return this year is over 60% versus 0% for the average return of the remaining 498 stocks.

The belief that generative AI is imminently about to radically change the economy and that Nvidia especially is positioned to benefit from this has been behind much of this narrow leadership.

Regardless on your views whether this is overdone or not, it has re-established growth’s dominance over value. Energy had been spearheading the value trade up until around March, but since then tech –- the vessel for many of the largest growth stocks –- has been leading the S&P higher.

The yield curve’s behaviour will be key to watch for a reversion of this trend, and therefore a heightened risk of S&P 500 underperformance. Growth stocks tend to outperform value stocks when the curve flattens. This is because growth companies often have a relative advantage over typically smaller value firms by being able to borrow for longer terms. And vice-versa when the curve steepens, growth firms lose this relative advantage and tend to underperform.

The chart below shows the relationship, which was disrupted through the pandemic. Nonetheless, if it re-establishes itself then the curve beginning to durably re-steepen would be a sign growth stocks will start to underperform again, taking the index lower in the process.

Equivalently, a re-acceleration in US inflation (whose timing depends on China’s halting recovery) is more likely to put steepening pressure on the curve as the Fed has to balance economic growth more with inflation risks. Given the growth segment’s outperformance is an indication of the market’s intensely relaxed attitude to inflation, its resurgence would be a high risk for sending growth stocks lower.

Tyler Durden Wed, 05/31/2023 - 13:20

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COVID-19 lockdowns linked to less accurate recollection of event timing

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing…



Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Credit: Arianna Sahraie Photography, CC-BY 4.0 (

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Remembering when past events occurred becomes more difficult as more time passes. In addition, people’s activities and emotions can influence their perception of the passage of time. The social isolation resulting from COVID-19 lockdowns significantly impacted people’s activities and emotions, and prior research has shown that the pandemic triggered distortions in people’s perception of time.

Inspired by that earlier research and clinical reports that patients have become less able to report accurate timelines of their medical conditions, Pawlak and Sahraie set out to deepen understanding of the pandemic’s impact on time perception.

In May 2022, the researchers conducted an online survey in which they asked 277 participants to give the year in which several notable recent events occurred, such as when Brexit was finalized or when Meghan Markle joined the British royal family. Participants also completed standard evaluations for factors related to mental health, including levels of boredom, depression, and resilience.

As expected, participants’ recollection of events that occurred further in the past was less accurate. However, their perception of the timing of events that occurred in 2021—one year prior to the survey—was just an inaccurate as for events that occurred three to four years earlier. In other words, many participants had difficulty recalling the timing of events coinciding with COVID-19 lockdowns.

Additionally, participants who made more errors in event timing were also more likely to show greater levels of depression, anxiety, and physical mental demands during the pandemic, but had less resilience. Boredom was not significantly associated with timeline accuracy.

These findings are similar to those previously reported for prison inmates. The authors suggest that accurate recollection of event timing requires “anchoring” life events, such as birthday celebrations and vacations, which were lacking during COVID-19 lockdowns.

The authors add: “Our paper reports on altered timescapes during the pandemic. In a landscape, if features are not clearly discernible, it is harder to place objects/yourself in relation to other features. Restrictions imposed during the pandemic have impoverished our timescape, affecting the perception of event timelines. We can recall that events happened, we just don’t remember when.


In your coverage please use this URL to provide access to the freely available article in PLOS ONE:

Citation: Pawlak DA, Sahraie A (2023) Lost time: Perception of events timeline affected by the COVID pandemic. PLoS ONE 18(5): e0278250.

Author Countries: UK

Funding: The authors received no specific funding for this work.

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Hyro secures $20M for its AI-powered, healthcare-focused conversational platform

Israel Krush and Rom Cohen first met in an AI course at Cornell Tech, where they bonded over a shared desire to apply AI voice technologies to the healthcare…



Israel Krush and Rom Cohen first met in an AI course at Cornell Tech, where they bonded over a shared desire to apply AI voice technologies to the healthcare sector. Specifically, they sought to automate the routine messages and calls that often lead to administrative burnout, like calls about scheduling, prescription refills and searching through physician directories.

Several years after graduating, Krush and Cohen productized their ideas with Hyro, which uses AI to facilitate text and voice conversations across the web, call centers and apps between healthcare organizations and their clients. Hyro today announced that it raised $20 million in a Series B round led by Liberty Mutual, Macquarie Capital and Black Opal, bringing the startup’s total raised to $35 million.

Krush says that the new cash will be put toward expanding Hyro’s go-to-market teams and R&D.

“When we searched for a domain that would benefit from transforming these technologies most, we discovered and validated that healthcare, with staffing shortages and antiquated processes, had the greatest need and pain points, and have continued to focus on this particular vertical,” Krush told TechCrunch in an email interview.

To Krush’s point, the healthcare industry faces a major staffing shortfall, exacerbated by the logistical complications that arose during the pandemic. In a recent interview with Keona Health, Halee Fischer-Wright, CEO of Medical Group Management Association (MGMA), said that MGMA’s heard that 88% of medical practices have had difficulties recruiting front-of-office staff over the last year. By another estimates, the healthcare field has lost 20% of its workforce.

Hyro doesn’t attempt to replace staffers. But it does inject automation into the equation. The platform is essentially a drop-in replacement for traditional IVR systems, handling calls and texts automatically using conversational AI.

Hyro can answer common questions and handle tasks like booking or rescheduling an appointment, providing engagement and conversion metrics on the backend as it does so.

Plenty of platforms do — or at least claim to. See RedRoute, a voice-based conversational AI startup that delivers an “Alexa-like” customer service experience over the phone. Elsewhere, there’s Omilia, which provides a conversational solution that works on all platforms (e.g. phone, web chat, social networks, SMS and more) and integrates with existing customer support systems.

But Krush claims that Hyro is differentiated. For one, he says, it offers an AI-powered search feature that scrapes up-to-date information from a customer’s website — ostensibly preventing wrong answers to questions (a notorious problem with text-generating AI). Hyro also boasts “smart routing,” which enables it to “intelligently” decide whether to complete a task automatically, send a link to self-serve via SMS or route a request to the right department.

A bot created using Hyro’s development tools. Image Credits: Hyro

“Our AI assistants have been used by tens of millions of patients, automating conversations on various channels,” Krush said. “Hyro creates a feedback loop by identifying missing knowledge gaps, basically mimicking the operations of a call center agent. It also shows within a conversation exactly how the AI assistant deduced the correct response to a patient or customer query, meaning that if incorrect answers were given, an enterprise can understand exactly which piece of content or dataset is labeled incorrectly and fix accordingly.”

Of course, no technology’s perfect, and Hyro’s likely isn’t an exception to the rule. But the startup’s sales pitch was enough to win over dozens of healthcare networks, providers and hospitals as clients, including Weill Cornell Medicine. Annual recurring revenue has doubled since Hyro went to market in 2019, Krush claims.

Hyro’s future plans entail expanding to industries adjacent to healthcare, including real estate and the public sector, as well as rounding out the platform with more customization options, business optimization recommendations and “variety” in the AI skills that Hyro supports.

“The pandemic expedited digital transformation for healthcare and made the problems we’re solving very clear and obvious (e.g. the spike in calls surrounding information, access to testing, etc.),” Krush said. “We were one of the first to offer a COVID-19 virtual assistant that deployed in under 48 hours based on trusted information from the health system and trusted resources such as the CDC and World Health Organization …. Hyro is well funded, with good growth and momentum, and we’ve always managed a responsible budget, so we’re actually looking to expand and gather more market share while competitors are slowing down.”

Hyro secures $20M for its AI-powered, healthcare-focused conversational platform by Kyle Wiggers originally published on TechCrunch

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