The History Of US Monetary Policy – Highly Recommended

Posted January 14, 2018

It is not possible to understand how the economy and the financial markets work in the 21^st Century without understanding how the government conducts Monetary Policy.  The first Macro Watch video of 2018 explains the past century of US Monetary Policy by analyzing the evolution of the Fed’s balance sheets between 1914 and 2016.

The video divides the history of the Fed into seven periods:

1914 to 1920:  World War I

1920 to 1930:  After the War

1930 to 1941:  The Great Depression

1941 to 1945:  World War II

1945 to 1970:  The Bretton Woods Era

1970 to 2007:  The Credit Boom

2007 to 2016:  The Crisis Years

Two charts are used to illustrate the evolution of monetary policy that occurred during each period: one showing the change in the Fed’s total assets and the other showing the change in the composition of the Fed’s assets and liabilities.

These snapshots of monetary history tell the story of how and why the United States monetary system evolved from a gold standard to a paper Dollar Standard.  They also show how the Fed was transformed from being a relatively passive institution at the time it was established to being the government’s most powerful economic policy tool today.

Once this history is understood, the reasons behind current monetary policy become much easier to grasp and the direction of future monetary policy becomes much easier to anticipate.

I am absolutely certain that those who can correctly anticipate the future direction of monetary policy will have a far greater chance of investing successfully during the years and decades ahead than those who cannot.

This is an important video and I strongly recommend that you watch it.  You won’t find this information presented so concisely anywhere else.  The video is 40 minutes long and contains 40 downloadable charts.  Alternatively, you might wish to read Friedman and Schwartz’s brilliant, 700-page A Monetary History Of The United States, as well as the 2000 pages of Meltzer’s three-volume A History Of The Federal Reserve.  They will take you as far 1987.

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