INTRO: Usually, average people don’t care about
or even know who the federal reserve chair is.
But ever since the pandemic hit, and Jerome turned on the money printer, he’s become
one of the biggest memes on the internet.
From making the money printer go brrr to his promise that inflation is just “transitory”,
Jerome has truly become a legend within the retail space.
Savers with a lot of cash despise his policies as they watch their savings evaporate away.
But, investors have had a blast buying the dip and going to the moon, well at least till
recently.
In the last few Fed meetings, Jerome has become a bit more hawkish and he’s made it clear
that interest rates are going up soon.
And this has resulted in one of the worst January’s ever in stock market history.
But I mean, I don’t think you can really blame him when you consider that he’s already
pumped up the money supply by $6 billion wait never mind $6 trillion within just the last
2 years.
So, Jerome has no doubt made his mark in economic history, but who even Jerome Powell, and how
did he become the money printer.
LAWYER POWELL: Taking a look back, Jerome Hayden Powell was
born on February 4, 1953, in Washington DC.
He was one of 6 children to Patricia and Jerome Powell.
And yes, his father’s name was also Jerome.
His family wasn’t billionaire rich or anything, but they did hold pretty prestigious positions
within society.
For example, his father was a private lawyer, and given that they lived in Washington DC,
he likely served for some pretty notable figures.
Similarly, Jerome’s maternal grandfather was the dean of the Columbus School of Law
and a lecturer at Georgetown Law School.
Considering Jerome’s background, I don’t think you’d be surprised to hear that Jerome
was sent to an elite private school called Georgetown Preparatory School.
Currently, for day students, yearly tuition comes in at $38,330 and for boarding students,
tuition comes in at $62,090.
This makes it the 4th most expensive boarding school in the US.
Anyway, moving on in Jerome’s elite journey, for his bachelor's, Jerome attended Princeton
University and majored in politics.
After graduation, Jerome become a legislative assistant to a Pennsylvania Senator named
Richard Schweiker.
He only did this for a year though before he went back to school.
This time, he attended Georgetown University and pursued a law degree.
While at Georgetown, Jerome served as the editor in chief at the Georgetown Law Journal,
so it looks like he had an interest in journalism, but he never explored this interest much further.
After graduating in 1979, he hopped around from one job to another as he tried to find
his calling.
First, Jerome moved to New York City and started clerking for a judge in the US court of appeals.
He did this for 2 years before he switched over to a law firm called Davis Polk & Wardwell.
He worked here for another 2 years before finally switching over to Werbel & McMillen.
He didn’t stick around for long here either as he left just 1 year later in 1984, but
this was his last job as a traditional lawyer.
Ever since then, Papa Powell has been all about the money.
MONEY POWELL: In 1984, Jerome picked up a job at an investment
bank called Dillon, Read, & Co.
Initially, he focused on the legal side of financing, merchant banking, and mergers/acquisitions.
But, with time, he was able to climb the corporate ladder and become vice president.
He worked here for a total of 6 years before he jumped over to the US Treasury in 1990.
Jerome wasn’t the first one to make this jump actually.
In 1988, the chairman of Dillon, Read, & Co, Nicholas F. Brady, left his position after
being appointed as the US Secretary of the Treasury by President Ronald Reagan.
I’m not sure if Nicholas put in a good word for Jerome but in 1992, Jerome was appointed
as the Under Secretary of the Treasury for Domestic Finance by President George H.W.
Bush.
This was perfect timing for Jerome as this put him in charge of overseeing a treasury
bond scandal.
If you weren’t aware, there’s a limit to buying treasury bonds during initial offerings.
Any individual person or entity can only buy a maximum of $5 million worth of treasury
bonds during each offering.
A trader at Salomon Brothers named Paul Mozer, however, was submitting false bids in an effort
to bypass the bond limit, but he of course got caught.
And Jerome was in charge of overseeing the investigation and sanctioning Salomon Brothers.
Salomon ended up being fined $190 million and they were forced to set aside $100 million
as a restitution fund.
The CEO John Gutfreund was also barred from serving as the CEO of any other brokerage
firm.
Just as this case wrapped up though, so did Jerome’s time at the treasury.
In 1993, President Bill Clinton took office, and he brought with him a new slew of secretaries.
So, Jerome returned to the private industry and picked up a job as a managing director
at Bankers Trust.
But unfortunately, the trust would get stuck up in some legal trouble right after Jerome
joined.
You see, Bankers Trust had convinced some big corporate clients including P&G that they
should invest some of their money in riskier investments such as derivatives.
These clients agreed and Bankers Trust went ahead and made these investments, but as you
might’ve guessed, this led to substantial losses.
And the clients ended up suing Bankers Trust for misrepresenting the risk involved and
they would win.
Clearly, this was not somewhere that Jerome wanted to be around for long, so in 1995,
he packed his bags and returned to Dillon, Read, & Co.
But this, Jerome also had a bunch of side hustles going on as well.
For example, in 1997, he became a partner at the Carlyle Group and founded the Industrial
Group.
He worked there till 2005 at which point he cofounded a private investment firm called
Severn Capital Partners.
The firm was focused on leveraging opportunistic investments within the industrial sector.
And finally, in 2008, Jerome became a managing partner at the Global Environment Fund.
As the name suggests, the firm was focused on making sustainable energy investments.
While all these side hustles and jobs kept Jerome busy for nearly 20 years, he did eventually
circle back to politics.
HAWK POWELL: Starting in 2010, Jerome served as a visiting
scholar at the Bipartisan Policy Center, and this was once again perfect timing for Jerome
as the debt-ceiling crisis rolled around in 2011.
If you follow politics, you’ll know that every few years, Congress has to raise the
debt ceiling.
If they don’t, the government will run out of money and default on their loans.
Usually, it’s a given that Congress will raise the debt ceiling, but politicians often
like to use it as a bargaining chip.
For example, the Democrats might say that they’ll help the Republicans raise the debt
ceiling as soon as the Republicans help them approve another round of stimulus checks or
raise the minimum wage.
Generally, one side gives in close to the deadline and things work out.
But every so often, neither side gives in and we enter the risk of default, and one
of these situations unfolded in 2011.
As a visiting scholar, Jerome became one of the leading voices advocating for bipartisan
support in raising the debt ceiling.
He presented all of the negative implications of not raising the debt ceiling such as ruined
credit and an irreparable reputation.
It’s not like the other politicians weren’t aware of these implications, but the Bipartisan
Policy Center ramped up the pressure to the max.
Congress did eventually raise the debt ceiling, but it wasn’t before being downgraded from
AAA to AA+ by the S&P.
In the meantime, President Obama was having a hard time filling a seat at the Federal
Reserve Board of Governors.
He had initially nominated a democrat named Jeremy C. Stein, but Senate Republicans refused
to approve his nomination.
Obama had to nominate someone that Republicans would accept, and who better to nominate than
the bipartisan man who was advocating for the debt ceiling to be raised.
And with that, Obama nominated Jerome Powell to the Federal Reserve Board of Governors
and he took office on May 25, 2012.
Two years later, Obama renominated him for a 14-year term, and the Senate approved this.
So, Jerome isn’t going anywhere till at least 2028.
Now, this doesn’t mean that he’ll remain chairman, but he will at least be a board
member.
Anyway, ever since Jerome took office, he’s actually mostly been a hawk.
In other words, he’s mostly supported tightening of monetary policy.
In September of 2012, for instance, he was a massive skeptic of a third round of quantitative
easing.
Similarly, one of his biggest goals has been ending banks that are quote-on-quote too big
to fail.
In 2017, he described the current state of Fannie Mae and Freddie Mac, the two biggest
mortgage providers is quote “unacceptable and unsustainable”.
He further elaborated that the next couple of years may be our last chance to end their
monopoly and prevent past mistakes from being repeated.
And Jerome soon got the perfect opportunity to take action as President Trump nominated
him for chair of the Federal Reserve in November of 2017.
PAPA POWELL: As soon as Jerome became chairman, he continued
to raise interest rates and announced his plans to reduce the Fed’s balance sheet.
He wanted to reduce their holdings from $4.5 trillion to $2.5 to $3 trillion.
At first, investors didn’t care too much, but as the effects of his tightening started
to take hold, they became more and more irritated.
In the last quarter of 2018, indices like the S&P 500 and Nasdaq corrected a full 20%,
and Trump was not happy by any means.
One of Trump’s signature bragging points was how good the stock market was doing.
But with Jerome tightening, the stock market was no longer doing that well.
So, Trump started to publicly criticize Jerome for doing a terrible job and started discussing
the possibility of firing Jerome.
With all this mounting pressure, Jerome backed off on the quantitative tightening, but he
made it clear that he was not going to return to quantitative easing.
He was just giving the market a chance to breathe and he would return to quantitative
tightening when appropriate.
You could say this aged like milk though as Covid came around just a couple of months
later, and Papa Powell turned on the money printer and it hasn’t stopped since.
This has led to exponential runs in growth stocks, cryptocurrencies, real estate, and
basically everything you can think of.
From the very beginning, a lot of critics argued that this excessive money printing
would lead to excessive inflation.
Jerome acknowledged these concerns from the very beginning by arguing that this inflation
would be transitory, but this is honestly super misleading.
When people hear that inflation will be transitory, they’re led to believe that price hikes
are temporary and that prices will go down.
But this is not what transitory inflation means.
Transitory inflation simply means that the inflation rate will go back down to average
numbers.
For example, let’s say an iPhone costs $1000.
If we see super bad inflation of 10% one year, the price of the iPhone will rise to $1100.
Even if inflation drops 2% the next year and the inflation was “transitory”, the price
of the iPhone would still rise to $1122.
For prices to drop, we would need 9% deflation and Jerome has by no means promised that.
So, the truth is, a lot of the price hikes we’ve seen are here to stay.
But recently, Jerome has changed his tone when it comes to inflation probably because
of Joe Biden.
All this rampant inflation is making Biden look bad, and mid-term elections are coming
up.
At the same time, Jerome needed Biden to renominate him, so it’s likely that Jerome has become
more hawkish to please Biden.
In the most recent Federal Reserve meeting, Jerome announced that they will complete their
taper by early march, and that rate hikes and quantitative tightening are coming soon
after.
So, it looks like the glorious or not glorious days of the money printer are finally coming
to an end.
But there’s no doubt that Jerome will forever be known as the legendary money printer of
the Covid pandemic.
Did Jerome’s money printer help you or hurt you?
Comment that down below.
Also, drop a like if you wish you could print money just like Papa Powell.
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