2 minute read / Nov 14, 2023 /
The First Mac Predates Modern Central Banking
12 years of zero-interest rate policies & then a sudden increase to 5.5% woke us all up to the Wall Street mantra : Don’t fight the Fed.
The US Federal Reserve Banking system is about 115 years old. It was created after the Panic of 1907. In October of that year, companies couldn’t borrow money because a trading firm called the Knickerbocker Trust went bankrupt trying to corner the copper market.
Lacking any government help, J.P. Morgan (the man, the myth, the legend, but not his bank) arranged for a group of individuals to lend money to keep the markets operating.
European countries had instituted central banks. It was en vogue like Panama Hats & frock coats, but the US had no central bank to coordinate a bail-out.
So government formed the Fed, a group of 12 banks in different cities (two of which are in the same state of Missouri : St. Louis & Kansas City) tasked with deciding how much money to print & how much gold to buy to back up the dollars to stabilize markets.
Only in the early 1980s did this change, after the US broke the gold standard & suffered stagflation in the 1970s.
The Fed then shifted to a 2% inflation target, which has been the policy ever since.
I wrongly assumed centralized banking & inflation-targeting were dated centuries old.
But it’s less than 40 years old in its current form.
The Apple computer predates the current incarnation of the Fed by nearly a decade. Inflation targeting occurred roughly at the same time as Microsoft’s IPO.