The Federal Reserve's two day meeting on interest rates and on the general health of this economy started this morning in Washington. It is, in case you're keeping track their last meeting of this very eventful monetary policy year. Now, regular listeners to this program will know that I'm a history guy and thus a firm believer that history matters. So I want to tell you a little story about the guy whose name is on the Federal Reserve building in Washington. Mariner echoes. Mariner eccles. Mirror echoes. Mariner eccles ran the fed from 1934 to 1948. That's The Great Depression through the aftermath of the Second World War. Those voices you heard were Sarah bender. She's a senior fellow at the brookings institution. Nina I hacker, she's an assistant professor at the university of Rhode Island and Robert hetzel. I went to work for the Richmond fed in 1975, so I am history and in fact December 16th, the university of Chicago press will have out my third book on monetary history. That book is 697 pages long we do not have time for that much history. But we've gathered the three of them together. Students of the fed as they are to tell you a story about one guy in one moment, a story really about who's responsible for managing the federal government's debt and the story starts. During World War II. December 7th, 1941, no American will ever forget this Sunday morning. As the U.S. turns to war, there's pressure from treasury on the fed to keep interest rates low. So that it would be easier for the Treasury Department to finance the debt. Oh, sure. I want to help my Uncle Sam. Well, you sure, and I also want to help myself. Therefore, I'm going to buy plenty of those defense bonds and stamps. That's the boy. That was Nina I hacker and Sarah binder again. Also, Abbott and Costello, urging Americans to buy war bonds. See Uncle Sam needs that money to build ships and planes, tanks, and what? Thanks. You're welcome. Remember low interest rates make all that debt that the government is issuing cheaper. So to help out Uncle Sam in the middle of a war, eccles and the federal open market committee agreed to keep the rate on long-term treasury bonds below two and a half percent. So the other side of this was that Mariner eccles was worried that issuing debt could foster inflation. But out of a commitment to the president, eccles, stifled those concerns and allowed the Federal Reserve to purchase those bonds as they were issued, keeping interest rates low. They saw it as an emergency measure. Time goes on and we come to June of 1950 and the Korean War breaks out. U.S. planes and U.S. ships are voted into action. Based in Japan by this point, Truman's in The White House eccles isn't the fed chair anymore, that's a whole separate story, but he is still on the interest rate setting federal open market committee. Truman is very, very determined that the fed is going to continue this rape pig. So he can finance the war cheaply. Except households are once again worried that they're going to face shortages that they're going to see rationing. And that leads to an increase in prices. That hoarding doesn't pay. Don't sell America short. Don't buy America short. It's an inflation shock. Here's the inflation shock prices were actually falling in the first half of 1950. Deflation. Technically, at an annual rate of about 2%. Then by January of 1951, inflation was running at almost 8%. Price is going up. Fast. So the fed really did not want to commit to Truman's plan to keep interest rates low. But they have to get treasured back down. Treasury and The White House. So in the midst of all of this, Truman invites Mariner echols and other fed officials. The trumps over to The White House. Up to The White House. And basically gives them a dressing down. Truman and his treasury secretary, a buddy of his, by the way, named John Wesley Snyder, say to the fed in essence, hey, there's a war on. If you give in and let rates rise, Truman had a line something like Stalin wins. It got a little contentious. And there's no resolution. The fed doesn't back down. And when the meeting is over, Truman and Snyder announced that the fed has agreed to maintain this peg of two and a half percent. Well, the FOMC didn't agree to that at all. They made no clear commitment. The White House and Truman had lied and there was no resolution. Okay, it got very contentious. Eccles is outraged. That sent him blistering bad. And so he leaks the story to The Washington Post and The New York Times that this was fabricated. After the times in the post published the fed's account of that meeting, it becomes clear that Congress isn't going to back Truman and the Treasury Department. Treasury knows that it's in a box and Congress will no longer back it up. So it knows it has to come some kind of agreement with the fed. And so we get to march the fourth, 1951, and something called the treasury fed accord. We called the accord, I think it's more of a divorce. We're breaking up the ties, which are driving us crazy. Henceforth, the fed will be in charge of monetary policy and the US Treasury will be in charge of debt. The fed's free to raise interest rates. So here we are. Four or so minutes into the story, and you're probably wondering why I'm telling you all this. Well, this is why. The move to split the connection between the Federal Reserve and the treasury facilitated the development of a gigantic private market for government debt. What we call the bond market. The federal government has something like $31 trillion in outstanding debt right now, a little bit more than that actually. And over the next couple of months, you are going to start hearing a lot about it again as Republicans try to leverage that debt for policy and political advantage. We take for granted that there will always be people in institutions and investors who are willing to buy up America's debt. And the growth of the United States in our ability to respond not just to war abroad but say to the global pandemic depends on treasury knowing that there's a stable bond market. And you can, at least in part, thank Mariner eccles for that. The availability and the strength of American debt comes out of that period. So he has a lot to do with the economy. We have today. Of course, there are decades of monetary policy history between the treasury fed accord of 1951 and the economy we have today. If you're interested, I've summarized this very briefly in 697 pages. It is, we should tell you available for pre order now.