Chapter 2: Money Isn't Played Like This

Mr. Blake probably believed that the Ford administration could revitalize the economy. Coupled with the massive currency issuance from the Fed, keeping money idle would only incur continuous losses.

Believing in the Ford administration, or rather, in the so-called "Great America," was not without reason. Before the 1970s, especially during the "Golden Decade" spanning from the 1950s to the mid-1960s, undoubtedly marked a significant period of economic prosperity for the United States.

In the global context of post-war economic recovery, the United States, which had already reaped the benefits of war, was exceptionally affluent. Moreover, with the so-called "European Recovery Program," factories had no trouble finding markets for their output.

The American economy soared, and Carter's dear old dad, Mr. Blake, rode the wave for nearly 20 years. From a poor boy in an agricultural state, he gradually built up his wealth and power, creating...

But that era of greatness was over. The gravy train had passed, leaving Mr. Blake standing on the platform, dazed like a bewildered pig. Well, Mr. Blake had enjoyed his 20 years, which was quite a good run. But leaving behind this mess, handing it over to himself, wasn't that a blatant trap?!

"If it's for them, it feels like I'm betraying myself even more."

"All right, let's stop this mutual aid fairy tale for a moment. Can we still borrow money from Porter Newt Bank or Monza Bank?"

Porter Newt Bank and Monza Bank were similar small banks in nearby towns, and they had often lent money to each other. Barely counted as industry acquaintances, since our own funds weren't enough, Carter naturally looked to them.

"Mr. Blake asked before, and their situation isn't particularly good now. They're willing to lend, but at a high-interest rate."

"High? How high?"

Carter's eyebrows rose, looking again at the calendar on the wall. A way out seemed to be forming!

"Mr. Porter from Porter Newt wants 12%, and he's willing to lend us $200,000; Monza is asking for 11.5% and can lend us $250,000. These rates are ridiculous; they're practically robbing us!"

Mr. Goodman complained indignantly about these two banks' daylight robbery, condemning their disregard for past friendships. Back in the day when Mr. Blake was around, how they struggled, how they helped each other through difficult times...

"Wait, wait! Let's pause the mutual aid fairy tale. What's the current federal funds rate?"

As a banker, if you help others in need, shouldn't you swallow them up and grow? Instead, they went to give low-interest loans to help others through difficult times.

The more Carter learned about Mr. Blake's past, the more he felt unable to complain about this dear old dad. Interrupting Mr. Goodman's complaints, Carter asked straightforwardly.

If he remembered correctly, in a few years, the federal funds rate would rise to its historical high. Was it 20? Or 21, 22...

Carter regretted not paying attention in class, but with this information, it was sufficient! Whether it was 20, 22, it was far higher than the interest offered by Porter Newt or Monza Bank.

"The federal funds rate is now 10.52%! Carter, are you planning to borrow money from the Fed? With the size of our bank, it's unlikely we'll get much."

10.52%?!

For the third time, Carter turned to look at the calendar on the wall. It was June 1979, and if there were no butterfly effects, two months later, Paul Volcker would take office as the 12th Chairman of the Federal Reserve.

And it was under Volcker's leadership that America's severe economic stagflation crisis was curtailed. Likewise, the record high federal funds rate was born under his reign.

Volcker's solution to the crisis was actually quite simple and brutal. He aggressively raised the federal funds rate, an extremely tight monetary policy.

It could be foreseen that with the increase in the federal funds rate, the cost of borrowing for banks would skyrocket. Banks wouldn't be able to lend as freely as before. Similarly, if the interest banks paid to borrow money rose, the interest they charged when lending out would also increase.

In an era where inflation remained high in the 1970s, most ordinary Americans developed the habit of spending first and paying later. Because if you saved money first, then spent, the money saved a year ago might only be enough to buy a motorcycle the next year. But if you borrowed money to buy a car first, the next year you'd only need to pay back the amount for a motorcycle!

Who wouldn't be foolish? In such a context, who would save money? There was hardly any installment repayment for loans nowadays. It was all due at the end, including principal and interest.

In other words, during this period, when you got this money in your hands, you didn't even have to pay interest. If you borrowed money for five years, it was about 50% interest.

Borrow $100,000, and in five years, repay $150,000! When the federal funds rate reached its highest point, borrow $100,000, and two years later, people had to repay you $140,000. And this was assuming you kept the money in your hands for three years before lending it out.

Despite being an economics graduate, Carter had never worked for a big investment bank like Goldman Sachs, but he understood.

The accounts didn't work like this! Money wasn't played like this!

Taking preemptive action, it was absolutely a surefire way to make money. The only risk was whether Paul Volcker would take office as Chairman of the Fed in August 1979!

Carter asked himself inwardly:

Do I take the gamble?!