Aug

2

 Book Review: "Who Needs the Fed?" by John Tamny 2016

What really attracted me to this book was the title, something I am in agreement with. I had not been aware of this author before reading a positive review in Forbes and the WSJ. Among other notables is a review from Andy Kessler, whom I have previously found to be objective, and of course a markets person.

First, in favor of the book: the author makes a very good case. Indeed it is safe to say that he finds nothing of value in the Fed's existence. Although a supply-sider, he criticizes them also. He is an adamant free-market advocate who favors no reserve requirements for banks and no FDIC. The Fed was originally created to provide liquidity to solvent banks, and has morphed into providing liquidity to insolvent institutions and even forcing solvent ones to take its money. The author favors creative destruction, whereas the Fed is a major player in central planning and the redistribution of assets to the "weak". "Why keep around that which intervenes in the natural workings of the markets? Didn't we learn in the twentieth century (often through mass murder and starvation) just how dangerous it is to empower central planners?"

The flip side: The tome is 180 pages whose points could have been successfully made in 45. There is so much repetition that it occurred to me the book could be an anthology of previous articles. Why else would the author repeat the exact same text over and over? Does he assume the reader to have Alzheimer's? In each of the 21 chapters he defines his meaning of "credit". He even repeats the exact quotes from Hazlett. Some text is occasionally difficult to read in that some sentences are too long to follow if only read once. He also frequently drops articles (e.g. "the"), probably because he thinks it sounds cool. It doesn't.

The book has no charts, graphs, tables or formulae. Undoubtedly someone told him that those things discourage readers. It is quite the opposite, as they can be used to illustrate a point. One chapter is devoted to how the price of oil responds solely to the price of the dollar with respect to gold. Being a "data monkey" I have the ability to check that out, and when I did I learned why there was no such chart. Yes, there is a sometimes relationship, but nothing to be relied upon.

His concept of real estate is that it solely constitutes consumption by households, not investment. Interestingly my best investment ever was when I acquired and improved a vacant lot 15 years ago for X dollars. Without any subsequent improvement that property currently produces 1.25 X each year in profits. If I were to characterize that as something other than an investment I would possibly call it a winning lottery ticket. I wish I had more of those.

My real reason for acquiring the book is that with a title like that, the author must have some idea as to what non-Fed variables might be of interest. That is, I agree that the Fed is detrimental, so if I had previously been a "Fedwatcher", what do I watch now? Fortunately I found one (just one) that might prove to be valuable.

If you need a guidebook on being skeptical of the Fed, get the book. His examples are great: Taylor Swift, Jim Harbaugh, Uber, etc.


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