Book report: "The Price of Time"

I have just finished reading the book, " The Price of Time: The Real Story of Interest," Kindle Edition, by Edward Chancellor.

My Kindle says that I have read 300 pages which is 54% of the book. The rest of the book is reference material.

Mr. Chancellor thanks many people, but his intellectual mentors are Jim Grant (of Grant’s Interest Rate Observer which requires a paid subscription), Doug Noland (who has written the Credit Bubble Bulletin for many years) and Claudio Borio, Head of the Monetary and Economic Department of the Bank for International Settlements (BIS, often called "the central bankers’ central bank). He is a member of the Bank’s Executive Committee.

The Credit Bubble Bulletin scares my socks off every time I read it. Credit has been in a bubble since 2001, when Fed Chair Alan Greenspan dropped the Fed funds rate and held it low for years after the mild 2001 recession (associated with the dot-com stock market bubble bust). The markets became addicted to low interest rates and the Fed dropped the real fed funds rate below zero after 2008 and 2020.

From the book’s summary:
" Interest is a necessary reward for lenders to part with their capital. Interest performs many vital functions: it encourages people to save; enables them to place a value on precious assets, such as houses and all manner of financial securities; and allows us to price risk.

All economic and financial activities take place across time. Interest is often described as the “price of money,” but it is better called the “price of time:” Time is scarce, time has value, interest is the time value of money."

In a capitalist society (or a Communist society practicing production and capital investments) the most important price of any commodity is the price of money.

Whenever the price of money is artificially controlled, it will be misallocated. Keeping the real yield of interest negative cheats savers and enables speculators in non-productive investments.

The Price of Time is the ultimate Macroeconomic variable.

All asset markets have been inflated by the yield suppression of central banks around the world. Not only the U.S., Japan and Europe. China’s misallocation of capital and enormous debts are absolutely breathtaking.

Low interest rates have caused a lot of harm. The Wall Street Journal, which one would expect to applaud low rates and the asset bubble, was damning with faint praise.

Ben Bernanke Wins a Nobel, in Theory

The former Federal Reserve Chairman’s research about financial crises didn’t help prevent one in 2008.

By The Wall Street Journal Editorial Board, Oct. 10, 2022

Ben Bernanke Wins a Nobel, in Theory

The former Federal Reserve Chairman’s research about financial crises didn’t help prevent one in 2008. …

Mr. Bernanke observed that when a bank fails, its institutional insight into the creditworthiness of its borrowers is lost and is hard to replace. This, Mr. Bernanke posited, was a major reason the Great Depression became as deep as it did.

This research is important and could be useful to central bankers, except it didn’t help Mr. Bernanke when he was at the Federal Reserve in the 2000s and 2010s. It may have done the opposite. We’d argue now, as we argued at the time, that Mr. Bernanke and the Fed created the monetary conditions that led to the worst financial panic in 80 years…

Suppressing interest rates to historic lows and flooding the economy with bank reserves via quantitative easing distorted markets for every form of credit in ways economists still don’t understand — and then the Fed did the same only more so when the pandemic hit in 2020. The long-term effects on financial stability are only now coming into view as Chairman Jerome Powell’s Fed fights the inflation it helped to ignite…[end quote]

The Fed’s raising of interest rates in 2022 has already begun to deflate bloated asset values around the world as the bubbles begin to burst. This process has only just begun. It’s less than a year in progress.

The Federal Reserve is already under intense scrutiny and pressure to back away from its program of raising the fed funds rate to neutral and past neutral to a restrictive rate that will slow inflation. This process will take months and perhaps longer since there’s no saying when inflation will begin to subside significantly.

Barring a genuine financial crisis (not a routine recession and/ or stock market hissy fit) the Fed will not back away from their program as long as inflation remains high. Powell fully understands the danger of backing away before inflation is really controlled. He wants to be Volcker, not Arthur Burns. He is willing to inflict pain and ignore whining and screaming.

As investors, we need to be aware that the negative real fed funds rate that inflated the bubbles may not return. Our asset values may not return to their 2020 highs for many years, if ever.

Yes, it’s happened before.


Actually whenever the price of money is not artificially controlled you will find the worst of loan sharking, violent swings in the business cycle, bank panics, economic crashes, manias, and all other manner of evil. Artificially controlling the price does not automatically eliminate all of this, of course, it just makes it dramatically fantastically more likely that such chicanery does not happen, or happens less frequently, or happens less violently.

It doesn’t take a lot to compare the 19th century, when there was none, with the 20th, when there was a fair amount.

But it all depends on the wisdom of those holding the reins - just like running a country, running a corporation, or riding a horse.If you have a fool at the controls expect very bad results. If you have no one at the controls, history tells us that it’s worse than having a fool in charge of it.


I agree with you that the Federal Reserve has corrected many of the evils of capitalist markets. Also the FDIC. I’m not in the corner of those who believe those agencies should be abolished.

But the actions of the Fed in the past 20 years have been extreme. They have deviated from their own historical actions. There’s a whole generation of investors who have never experienced anything like a market-determined short term interest rate.



The Fed is essentially a trade association of the banking industry which is expected to make decisions which, assuming the economic swings are not too extreme, will provide a suitable environment for banks to maximize their profits. That encourages leverage and the facilitation of banks having the ability to transfer their risks. Low interest rates foster this environment and its only when inflation raises its head (frequently a function of fiscal, rather than monetary decisions) that the Fed is forced to take extreme actions.

It is my expectation that, unless there is either a debt default crisis or a deflationary crisis, US banks will be surprisingly profitable despite inflation.



If so, then now seems like a good time to be buying banks. JPM and GS recently showed up on a screen I use, TROW has been on it for a while, and commercial banks like TFC are there as well. What are your thoughts about buying finance right now?


True. But then the Fed has reacted to two “once in a generation” events. The Fed’s drastic actions were called for, especially after 2008 (a problem they had little to do with inventing).

I would agree that they held rates too close to zero for too long and that we are now seeing the fruits of that misallocation. I wonder what the other prescription for the bank lockup, credit freeze, and general economic crash might have been. While I fault the Fed, I also note that it has been a human condition for as long as there have been humans to keep the party going, often overlong, and that I do not have a solution to that, so we live with the effects even as we decry them.

It’s clear after the inflation report this week that the next Fed rise will be another .75 (at least) and that there is more pain to come. I still believe they are looking in the rear view mirror (a view I’m seeing more frequently in the financial press) but they are afraid, very afraid of not getting ahead of the inflation beast, so I buckle up.

I have moved liquid cash into some treasury and CD parks heavily weighted to the short end while I wait it all out. I had hoped to start deploying, but that seems a bit premature. (I still have some play money if opportunities arise.)


William McChesney Martin Jr. served as the 9th chairman of the Federal Reserve from 1951 to 1970, the longest serving in that position. He famously said, "The job of the Federal Reserve is “to take away the punch bowl just as the party gets going,” that is, raise interest rates just when the economy reaches good activity after a recession. He did not wait to raise rates until the economy (and asset markets) reached peak activity to avoid overstimulating the economy into a recession.

All the Fed chairs after 2000 allowed Fed stimulus with ultra-low rates long after the recessions of 2001, 2009 and 2020 ended. This led to bubbles. They should have listened to Martin but didn’t.

I just read Fed Chair Bernanke’s new book, " 21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19." He is absolutely convinced that the Fed was doing the right thing by keeping rates low and tweaking them carefully to juice the economy and avoid recession. But history shows this led to bubbles and crashes even though the stability and strong asset markets were pleasant while they lasted.

The Fed was also very much to blame for neglecting regulation of the banks before the 2008 crisis, which was their responsibility. Unless they had their heads in a bucket, they must have also been aware of the excesses of the non-bank lenders and should have made proposals to Congress to take over their regulation (or appoint a separate regulator).

Of course the financial press and many others will say this. The reason the Fed is independent is to insulate them from pressure.

Buckle up. There we agree. :slight_smile:


I would find this more convincing if the US hadn’t had four recessions during this 19 year period, a frequency higher than most other periods of that length. I note that ending his term in 1970 was auspicious, as inflation was already accelerating and, coupled with the OPEC shocks, led to the worst bout of it we’ve had in decades.

I have to admit his words are on point, but I wonder if they were more words than action?