the Fed parceled out every day. “Money” was mainly an electronic expres-
sion, a matter of sending a message: You, First National Bank ofPodunk,
now have an additional three million dollars which you may lend to Joe’s
Hardware, or Jeff Brown’s Gas-and-Go, or for new homeowners to borrow
as mortgage loans to pay back for the next twenty years. Few of these people
were paid in cash-with credit cards there was less for a robber to steal, an
employee to embezzle, or most inconveniently of all, a clerk to count, re-
count, and walk to the local branch of the bank. As a result, what appeared
by the magic of computer E-mail or teleprinter message was lent out by writ-
ton draft, lo be repaid later by yet another theoretical expression, usually a
check written on a small slip of special paper, often decorated with the pic-
lUlf ol’ a flying eagle or a fishing boat on some lake that didn’t exist, because
Ihc hunks competed for customers and people liked such things.
‘Ittc power of the people in this room was so stunning that even they rarely
thought about it. By a simple decision, the people around the table had just
miute everything in America cost more. Every adjustable-rate mortgage for
•very home, every auto loan, every credit card revolving line, would become
more expensive every month. Because of that decision, every business and
household in America would have less disposable income to spend on em-
ployee benefits or Christmas toys. What began as a press release would
tench into every wallet in the nation. Prices would increase on every con-
•umcr item from home computers to bubble gum, thus reducing further still
•veryone’s real buying power.
And this was good, the Fed thought. All the statistical indicators said the
•conomy was running a little too hot. There was a real danger of increasing
Inflation. In fact, there was always inflation to one degree or another, but the
Interest raise would limit it to tolerable levels. Prices would still go up some-
what, and the increase in the discount rate would make them go up further
•till.
It was an example of fighting fire with fire. Raising interest rates meant
that, at the margin, people would borrow less, which would actually reduce
the amount of money in circulation, which would lessen the buying pressure,
which would cause prices to stabilize, more or less, and prevent something
that all knew to be more harmful than a momentary blip in interest rates.
Like ripples expanding from a stone tossed into a lake, there would be
Other effects still. The interest on Treasury bills would increase. These were
debt instruments of the government itself. People-actually institutions for
the most part, like banks and pension funds and investment firms that had to
park their clients’ money somewhere while waiting for a good opportunity
on the stock market-would give money, electronically, to the government
for a term varying from three months to thirty years, and in return for the use
of that money, the government itself had to pay interest (much of it recouped
In taxes, of course). The marginal increase in the Federal-funds rate would
raise the interest rate the government had to pay-determined at an auction.
Thus the cost of the federal deficit would also increase, forcing the govern-
ment to pull in more of the domestic money supply, reducing the pool of
money available to personal and business loans and further increasing inter-
est rates for the public through market forces over and above what the Fed
enforced itself.
Finally, the mere fact that bank and T-Bill rates would increase made the
•lock market less attractive to investors because the government-guaranteed
return was “safer” than the more speculative rate of return anticipated by a
company whose products and/or services had to compete in the marketplace.
On Wall Street, individual investors and professional managers who
monitored economic indicators took the evening news (increases in the Fed
rate were usually timed for release after the close of the markets) phlegmati-
cally and made the proper notes to “go short on” (sell) their positions in
some issues. This would reduce the posted values of numerous stocks, caus-
ing the Dow Jones Industrial Average to sink. Actually, it was not an aver-
age at all, but the sum of the current market value of thirty blue-chip stocks,
with Allied Signal on one end of the alphabet, Woolworth’s on the other, and
Merck in the middle. It was an indicator whose utility today was mainly that
of giving the news media something to report to the public, which for the
most part didn’t know what it represented anyway. The dip in “the Dow”
would make some people nervous, causing more selling, and more decline in
the market until others saw opportunity in stock issues that had been de-
pressed farther than they deserved to be. Sensing that the true value of those
issues was higher than the market price indicated, they would buy in mea-
sured quantities, allowing the Dow (and other market indicators) to increase
again until a point of equilibrium was reached, and confidence restored. And
all these multifaceted changes were imposed on everyone’s individual lives
by a handful of people in an ornate boardroom in Washington, D.C., whose
names few investment professionals even knew, much less the general pub-
lic.
The remarkable thing was that everyone accepted the entire process,
seemingly as normal as physical laws of nature, despite the fact that it was
really as ethereal as a rainbow. The money did not physically exist. Even
“real” money was only specially made paper printed with black ink on the
front and green on the back. What backed the money was not gold or some-
thing of intrinsic value, but rather the collective belief that money had value
because it had to have such value. Thus it was that the monetary system of
the United States and every other country in the world was entirely an exer-
cise in psychology, a thing of the mind, and as a result, so was every other
aspect of the American economy. If money was simply a matter of commu-
nal faith, then so was everything else. What the Federal Reserve had done
that afternoon was a measured exercise in first shaking that faith and then
allowing it to reestablish itself of its own accord through the minds of those
who held it. Holders of that faith included the governors of the Fed, because
they truly understood it all-or thought that they did. Individually they
might joke that nobody really understood how it all worked, any more than
any of them could explain the nature of God, but like theologians constantly
trying to determine and communicate the nature of a deity, it was their job to
keep things moving, to make the belief-structure real and tangible, never
quite acknowledging that it all rested on nothing even as real as the paper
currency they carried with them for the times when the use of a plastic credit
card was inconvenient.
They were trusted, in the distant way that people trusted their clergy, to
maintain the structure on which worldly faith always depended, proclaiming
the reality of something that could not be seen, an edifice whose physical
manifestations were found only in buildings of stone and the sober looks of
those who worked there. And, they told themselves, it all worked. Didn’t it?
In many ways Wall Street was the one part of America in which Japanese
citizens, especially those from Tokyo itself, felt most at home. The buildings
were so tall as to deny one a look at the sky, the streets so packed that a
visitor from another planet might think that yellow cabs and black limou-
sines were the primary form of life here. People moved along the crowded,
dirty sidewalks in bustling anonymity, eyes rigidly fixed forward both to
show purpose and to avoid even visual contact with others who might be
competitors or, more likely, were just in the way. The whole city of New
York had taken its demeanor from this place, brusque, rapid, impersonal,
tough in form, but not in substance. Its inhabitants told themselves that they
were where the action was, and were so fixed on their individual and collec-
tive goals that they resented all the others who felt precisely the same way.
In that sense it was a perfect world. Everyone felt exactly the same. Nobody
gave much of a damn about anyone else. At least, that’s the way it appeared.
In truth, the people who worked here had spouses and children, interests and
hobbies, desires and dreams, just like anybody else, but between the hours of
eight in the morning and six in the evening all that was subordinated to the
rules of their business. The business, of course, was money, a class of prod-
uct that knew no place or loyalty. And so it was that on the fifty-eighth floor