Documentary Review: Money for Nothing: Inside the Federal Reserve

Money for Nothing: Inside the Federal Reserve is available to stream through Netflix.

Summary: Money for Nothing interviews former governors of the Federal Reserve, macroeconomists and features interviews with former Chairman Paul Volker and current Chairwoman Janet Yellen. The film takes a historically objective examination of the decisions, and their consequences, made by Federal Reserve policymakers. Money for Nothing leaves the viewer as the Federal Reserve attempts a return towards ‘normalization,’ concluding we as a global-economy face a new unprecedented age of monetary policy.

— -

Money for Nothing is likely the most historically accurate and objective film made this century regarding US Monetary Policy. While tracing the history of the Fed through inception on Jekyll Island in Georgia in the early 1900’s, the film lays bare the objectives of the Fed and the subsequent changes to their mandate.

Through interviewing many former governors of the Fed, one can deduce they take blame for many missteps made in the run up towards the Great Depression, and the Fed’s response (or lack of one) that caused the Depression.

After WWII the US rose as the preeminent financial super power through the Bretton Woods Accords. Through the agreement, the US would link the Dollar to gold while all other nations linked their currency to the US dollar. This agreement worked well through the next two decades, though the Fed’s mandate was changed shortly after signing of Bretton Woods to target both inflation and, for the first time, the nation’s unemployment rate.

With a sense of great optimism in the 1960s, both policy makers and government officials felt that they had finally gotten the formula right — both inflation and employment were near record lows. President Lyndon Baines Johnson envisioned a Great Society and winning the Vietnam War through a massive troop build-up.

To combat the inevitable rising inflation through a massive increase in government spending on war and social programs, Chairman William Martin wanted to raise interest rates. Doing so, however, would target LBJ’s Great Society. The film makes it clear that William Martin, like so many others during LBJ’s tenure, relented to the President’s demands and made no such change to the nation’s growing money supply.

Eventually, however, the United States could no longer keep its word in pegging the US dollar to the Gold Standard. There were simply too many dollars floating around through Congress running account deficits to finance the Vietnam War and Great Society.

As such, in 1971 President Richard Nixon began what the documentary calls a period of “The Great Inflation” by breaking the Bretton Woods Agreement and allowing the US Dollar to become a floating fiat currency, held together through the collective belief that the currency holds value.

Over the next few years, the value of the dollar would fall by over 40% as inflation targeted the poor and middle class, increasing the price necessities such as utilities & everyday food items.

To combat rising inflation, President Jimmy Carter appointed Paul Volker as new chairman in 1979. Volker took great pride in the Fed’s ‘independence within the government’ and did the politically unpopular thing to do by raising interest rates over the next few years — at one point, reaching as high as 21%. Though less homes were being built and many construction workers were out of work, the Fed accomplished its mandate and returned inflation to manageable levels.

And in 1987, President Ronald Reagan appointed a laissez-faire and Ayn Rand objectivist advocate by the name of Alan Greenspan to the world’s most powerful central bank. The rest of the film takes a close examination of Mr. Greenspan’s decisions during his tenure.

The three events during Greenspan’s tenure most closely examined are that of the stock market crash of 1987, the collapse a prevention of contagion by Long Term Capital Management in 1998 and the creation of the housing bubble before collapse during the mid-2000s.

During each, the film argues, Greenspan acted as an interventionist in ‘cleaning up the mess,’ but did little to prevent it from occurring in the first place. Such actions taught traders and large banks that there was little downside risk to their increasingly aggressive actions.

The film also concludes that Greenspan encouraged markets in the creation of “Asset Bubbles,” whereby individuals drew equity out of their home to support consumer spending, which would have otherwise been recessed during the mid-2000s. Greenspan’s aggressive cutting of interest rates to prevent a recession after the September 11, 2001 terrorist attacks did exponential damage in adding fuel to the housing crisis. With such low interest rates, housing prices were artificially inflated for borrowers willing to sign for a home. To make matters worse, Congress gave the Fed sole authority to regulate housing markets and those companies issuing loans, which the Fed did not act to regulate.

The film explains how The Fed responded when Greenspan retired after an unprecedented 5 terms and Ben Bernanke took reigns — through unprecedented action of bailouts and quantative easing.

At one point during the mid-2000s, the film cuts to Brooksly Born, Chair of the Commodity Futures Trading Commission testifying to Congress on the need to regulate some new derivative markets, a position in which Greenspan disagrees. Texas Senator Phil Gram asks what the consequences of not regulating the markets would be, which Born states saving the US taxpayer. Less than 10 years later, the US taxpayer helped bailout many of the companies trading in these markets to the tune of over $182 Billion Dollars.

The film leaves the viewer with the notion that we are in a new age in terms of Fed Policy. As the Fed looks to ‘normalize’ rates in the near future, many economists explain that the Fed is ‘out of bullets’ in terms of correcting any crisis that may be on the horizon.

With the stability of the Euro increasingly in question, and Puerto Rico in a ‘death spiral’ of debt obligations they have stated they cannot repay, watching Money for Nothing will give you fresh eyes through which to view economic events occurring throughout the world.

You can follow more of John’s writings including such topics as poetry, politics, policy and humour on Facebook here. All views held are solely his own and subject to change.