Nomi Prins has a very clear idea of why inequality has become so severe. In Permanent Distortion, she lays the blame squarely on central banks, and in particular the Federal Reserve Bank in the USA (Fed). In patient and detailed summaries of events, the conclusion, especially in hindsight, is crystal clear. Bankers stick together and share the wealth. The rest be damned.


To anyone in the UK, this is in no way a discovery. The old boys network rules, period. For the USA, it has become increasingly obvious as well. But not, it seems, to the Fed itself. The Fed has acted and continues to act as if on behalf of the greater good. Nothing could be further from the truth. It acts purely on behalf of other bankers, making them all fabulously wealthy even as the world burns.


A few dozen people have more money than the entire lower income half of the world. And it continues to worsen daily. When economies are humming, they make lots of money. And when things are bad, they make lots more money, thanks to the central banks. Even just the notion of a free market, she says, has become irrelevant.


This is not a textbook. Prins doesn’t use dismal economic theories to demonstrate various opposing forces (outside of a brief topline explanation of modern monetary theory). Instead, she recaps recent news, from the 2008 financial crisis to the present (including a long and ultimately pointless recitation of the history of bitcoin and alt-coins). The Fed’s own actions are more than sufficient to prove her point (which is why the bitcoin story is largely irrelevant), not to mention the copycat moves by central banks around the world, damaging their own economies even more. Central banks exacerbate inequality like nothing else does.


The real reason the Fed strives to exclude bitcoin and the rest from its calculations is simply control. The Fed has no control over bitcoin. And if it can’t manipulate a currency, it must therefore not be a currency. Or not allowed to be considered or become one. So recapping the history of bitcoin over numerous pages is ultimately a waste of time. It plays no role here whatsoever.


She says in summary: “Today’s financial system is as unhinged from the realities of classic capitalism as it is from the economy.” This is her way of summing up the centuries-old battle between Wall Street and Main Street. Only she takes it a step further: even capitalism would be shocked at the action of the Fed. Because the Fed has settled on a headscratching and bizarre course of action - save the banks at all cost, and merely hope that some money finds its way from them into the economy. Whether it is called trickle down or science fiction, that is the aegis under which the whole world now operates, from Brazil to China and everywhere in between. This one tactic is the root of galloping inequality globally.


Prins, who has been a banker for the biggest banks, says “After more than a decade of artificial monetary policy experiments, one thing was clear: central bankers had demonstrated gross negligence. Central banks didn’t invent inequality or instability, but ten years of evidence was surely enough to prove their policies had aggravated the gap between the haves and the have-nots.”


Here’s how it works:


Banks have one operating rule – find a way around the law, especially around the intent of the law. No matter how strongly countries try to rein in their banks, the banks worm their way out and enrich themselves by doing things quasi-legally or outright fraudulently. Everyone must follow or be left behind. This becomes a bubble, and the bubble bursts. The banks then cry for help, along with the entire economy they have brought to its knees. The banks are too precious to go down, too big to fail, etc. The Fed comes to their rescue. It throws money at the banks to prevent them from closing up and disrupting the flow of money to the largest corporations. Bankers don’t get arrested. They don’t get booted out. They mostly don’t even get fined, and when they do, it’s their banks that pay, not them personally.


With their cash river restored, and with no requirement from the Fed to use the money wisely this time, the whole cycle repeats. Ad nauseam.


On the other side of the ledger is Main Street – the economy. Despite its own cries for help, with unemployment rising, bankruptcies everywhere, intractable government deficits due to lower tax receipts, infrastructure crumbling (causing lower productivity) and budgets eviscerated by inflation, the Fed only helps its fellow bankers – who caused the whole mess all by themselves.


Because the Fed has a unique trick. It can print money at will. It’s just a keystroke. It can and does purchase billions of dollars of bonds every month (called Quantitative Easing or QE), putting cash in the hands of the sellers of those bonds. There is so much cash around that the sellers have no choice but to put it - in banks. Banks are so flush they long ago decided not to even bother with mid-size, let alone small business. These crumbs have been left to new entities called business development corporations. And the banks are their biggest investors. Everything about banking is distorted.


The Fed has kept interest rates at or near zero, to encourage inexpensive borrowing. That borrowing is all done by huge corporations and banks, for their own benefit. It often goes to public companies, which use it to buy up their own stock instead of improving or expanding their businesses. This avoids messy hiring and training, unprofitable new building and expansion, and expensive operations. Instead, stock prices keep rising, even as the economy crumbles. The richest benefit the most. Again. And banks howl at the slightest hint of higher rates.


Even though the Fed naively hopes the banks will share the wealth, there can be no trickle down – the banks refuse. Prins found that 70% of the payouts from public companies went to buying back their own stock because they don’t know what else to do with it that will add as much to their own wealth. This very much includes the members of the Fed, former private bankers all. They all seem to get caught spending an inordinate amount of time trading for their own accounts. After all, they know what’s coming better than anyone.


Even the disbursement of the trillions by the Fed is corrupt. It hired Blackstone, a multitrillion dollar banking firm, to make its bond purchases for it, instead of purchasing them directly in the market. Blackstone uses new Fed dollars to purchase shares in its own ETFs – exchange-traded funds - that look and act just like stocks. It is those ETFs that actually purchase the bonds with the Fed’s new money. Meanwhile, the Fed pays Blackstone two cents per hundred dollar expenditure to buy them on its behalf. As the total amount of Fed largess is in the trillions, this makes Blackstone additional tens of billions on top of the investments themselves. It helps keep it all in the family.


Yes, government finally got annoyed. With the COVID pandemic, it took the unprecedented step of sending ordinary people and small firms wads of cash to help them get over things like lockdowns, unfunded payrolls and overdue rents. One of the reasons was that hundreds of millions of people screamed during the last recession that they would help the economy far more than banks if the Fed’s aid was given directly to them to actually spend in the economy rather than to rich banks that used it for stock buybacks for themselves.


But wait; there’s more.


This mess is the permanent distortion of the book’s title, in vivid action. But it doesn’t stop here. Prins points to the rest of the world being forced to follow the Fed: “During 2019, sixty-seven central banks eased monetary policy—by either cutting rates, lowering reserve requirements, initiating loan programs, or restarting asset purchases. Yet this exercise only added half a percentage point to global economic growth, according to the IMF.” Meanwhile, global debt has risen to an unimaginable $225 trillion as issuers know that central banks will buy up their paper. Si it is no exaggeration to say the world is awash in money. And clearly, that money is not going to improving common lives.


We all see and recognize this does not work, but we continue to allow the Fed to do ever more of it, keeping interest rates low so the banks won’t scream. Their screams count more than the screams of seven billion people put at risk by its actions. It is so ingrained that even when the Fed announces its intention to raise interest rates, the bond market not only doesn’t fall, it often rises, and dramatically so. The spread between the two year treasury and the 30 year is actually negative. You get a higher payout from the two than the 30 (or from any other treasury note). This means the bond market recognizes interest rates have risen, but expects the Fed to reverse course and restore nearly free money after a year or two. This cannot be a long term trend, is the message from the bond market. It fully expects the Fed to cave in to aid their poor bank bros again soon. And the bond market is not often wrong.


Despite all evidence to the contrary, the Fed Chairman does not see it that way: “In February 2020, as he spoke before the Senate Banking Committee, Fed Chairman Jerome Powell claimed ‘there is nothing about this economy that is out of kilter or imbalanced.’” This despite the fact the Fed alone now owned a quarter of the government bonds in the market. Not China, not investment banks – the Fed.


Even God had had enough by then, and the COVID pandemic caused the stock market to crater just three weeks after Powell’s testimony. But not to worry. Prins cites Dennis Kelleher, who runs a markets watchdog service as saying “that the pandemic has been very good for banks and their shareholders, even as it has devastated millions of America’s workers, homeowners, renters, and Main Street businesses.” And he was just referring to the bogus stress tests the banks were pre-prepared for by the Fed. But none of this is a revelation to anyone in finance.


Prins tries really hard to make it understandable. She is forever offering allusions to more familiar phrases so the reader might understand what the Fed and the banks are actually doing. She says that Fed actions are like watering selected plants in the garden, for example, if that is helpful. But sometimes, her efforts get so strained they become comical: “The pandemic aggravated the existing distortion between the real economy and the market in the same way that scratching off a scab can result in a permanent scar.” …um…okay…


This is about as insightful as beavers in the closet. (And if you know that reference, you are likely the only other person in the world who appreciated it, and my hat comes off to you.)


There are also things to disagree with, like: “The metaverse, or immersive techno-reality, is a symptom and outcome of today’s distortion. At its core, it represents a virtual and technological protest against central banks, private megabanks, and the cronyism between governments and companies.” No, the metaverse is a profit center. It is there to bilk people out of billions of dollars. It is simple capitalism in action.


The proof of the Fed nonsense is in the stats, and Prins has them. She says the US economy grew 2.2% in 2012, while the S&P 500 index rose 13.4%. The same thing was happening all over the world. It made no sense, until you plugged in the central bank buying and subsequent share buybacks, distorting the free market beyond recognition.


After this strong showing, the conclusion of Permanent Distortion is unexpectedly weak, pointing to five areas where economies will focus in the future, and basically ignoring what needs to be done about the central bank distortions, the actual subject of preceding book. Regardless, readers will get the impression those distortions are not only here to stay, they have only just begun. That is the most damning of all.



David Wineberg