How a "divorce" between the Treasury and Fed helped build the modern economy
The
These days, the
In 1951,
Leading up to that split, conflict was brewing between
The Second World War
"As the
Low interest rates make debt cheaper. Because of the large amount of government spending required to fund the war effort, "the Fed agreed to peg interest rates and keep the long-term bond rate no higher than 2.5%," said
"The other side of this was that
"They saw it as an emergency measure," said Binder.
But as time went on, Eccles and other
Rising tensions during the Korean War
In June of 1950, when
By
Meanwhile, "Truman [was] very, very determined that the Fed continue this rate peg so he can finance the war cheaply," said Hetzel.
That set the stage for conflict between
As tensions rose,
"The
"Eccles makes plain what happened, which is that that the
After the Fed's account of the meeting got published in The
The Treasury-Fed Accord of 1951
On
Here's why that matters: "The move to split the connection between the
The federal government has more than
"We take for granted that there will always be people and institutions and investors who are willing to buy up America's debt," said Binder. "The growth of
And you can— at least in part— thank
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