How We Got Here: The Fed Confuses Itself:Part 3

I was rather content to let the matter lie after devoting a couple of lengthy expositions to it, but the Fed has its own way of confirming every charge. I am writing again about the fact that the assumed monetary agency was quite curious about the dramatic changes in banking and money at one point in the not-so-distant past only to be fixated not long after with only avoiding it. It would have been hard not to notice the eurodollar’s first appearance on the global financial stage given that it replaced the gold exchange standard under Bretton Woods. However, it was safely tucked by monetary orthodoxy into the box of benignity and the Fed went on the rest of the 1980’s and into the 1990’s confident about all sorts of economic and financial control.

There were numerous reasons to think all that misplaced even as the 1980’s continued on, but by the middle 1990’s it had become undeniable – though still nothing was done about it. I continue to refer to Greenspan’s “irrational exuberance” speech, which is very well-known and persists in lore and legend, because it was actually about his mystification over “some” monetary shift. Given that his thinking within that speech transferred toward asset bubbles with regard to such a question, I cannot fathom as to why the Fed chair or anyone else associated with the FOMC would not revisit the eurodollar notion that was once rather contentious and upfront.

That was the essence of what I have called the Fed’s 1979 warning; that monetary character and banking itself was changing and in ways that were worried not, ultimately, predictable. And by 1996, Alan Greenspan was in high disregard for how money suddenly wasn’t acting predictably (specifically, that economic and money correlations weren’t holding). As if to extend that line from 1979 through 1996 all the way to 2015, sewing up 2008 along with it, San Francisco Fed President John Williams expressed Friday the same wonderment with apparentlydecreasing understanding. In other words, the Fed knew somewhat of eurodollars in 1979 and has been growing only more ignorant as time has passed: