DETROIT – There’s a building on Warren Avenue on the east side of Detroit, not far from the freeway and the morgue, in which there is something like two billion dollars in cash, all the time.
But don’t get your hopes up — you can’t get it, or get at it. The security is intense; just getting into the building is something like getting into Fort Knox, and there are indeed guys with guns.
Yet all is as legitimate as can be. Welcome to the Federal Reserve Bank of Chicago’s Detroit Branch. The vast piles of cash are largely stacks of new currency being distributed to banks, or old, damaged and worn-out bills which will be replaced and shredded.
Indeed, when I left the other day, they gave me a cute package of “Fed Shreds”– a little bag containing the remains of about 34 bills of different denominations that were once worth about $364.
No, I didn’t try gluing them back together. To the extent most people know anything about the Federal Reserve at all, it is that it is the body that sets interest rates: When inflation is rising, as it has been recently, they tend to hike those rates, to slow borrowing and try to slow down the economy enough to lower inflation without slowing things so much we are plunged into a recession.
When things are sluggish and unemployment is high, as it was in the aftermath of the “Great Recession” of 2008-9, they tend to lower rates to encourage economic activity, and make it easier for someone to start a business or buy a house or car. That’s why in the summer 0f 2021, it was possible to get or refinance a mortgage for under three percent, and it is twice that today.
That isn’t close to all the Fed, as it is usually called, does: Besides keeping the money supply flowing, it supervises and regulates banks, does other things to try and keep the economy humming smoothly, and provides other services to the government (though it is often thought of as being part of the government, it is really a sort of quasi-governmental entity; its internet suffix is .org, not .gov.)
But setting the interest rates, and the impact that can have on our lives, is always what gets the most attention. Contrary to popular belief, again, this is never done to make some politician or president look good, or bad; President Biden has no more say in what the Fed does than you do, unless through the influence of his policies.
Nor are they decided on a whim. The Fed, by the way, is divided into a dozen regions, whose boundaries at first glance don’t appear to make much sense, “until you consider how transportation patterns worked in 1913, when the system was set up,” said Kristin Dziczek, a policy advisor in the Detroit branch’s economic research department. Though the Detroit branch is housed in an imposing new building on a 17-acre site, it is but a satellite of the Chicago office.
The Federal Reserve Bank of Chicago, the formal name of the Fed’s region seven, includes Iowa, roughly the northern half of Illinois, the northern three-quarters of Indiana, the southern half of Wisconsin and all of Michigan’s lower peninsula.
That’s a large and economically diverse region, and to give the board of governors the best possible advice, they maintain a host of analysts. The automotive industry is the heart of Michigan’s economy, for example, and Dziczek, an economist who formerly was a vice-president of the Center for Automotive Research, helps provide the Chicago Fed with analysis about the state of the industry.
Much of what she provides them is confidential, or has to be approved for release outside the system. But it is no secret that the industry is dramatically changing. By the end of this decade, more than half the vehicles made will be alternative fueled vehicles –mainly electric or hybrids, though don’t count out hydrogen-powered cars.
That won’t mean an end to gasoline-powered cars any time soon; “there are 300 million cars on the road,” she noted, most running on fossil fuels and lasting longer than cars in earlier decades.
Nor will the so-called “chip crisis,” largely a legacy of supply chain issues related in part to the pandemic, end soon. “The supply problem is a lot more than chips,” she noted. She herself ordered a new vehicle in January, and it didn’t arrive till September.
Even then, her car was missing a few small features, like the technology that allows one to wave a foot under the car to open the tailgate. “I’m no longer carrying a baby in my arms, so what’s the big deal?” she laughed; she agreed to accept the car for a discount for the missing minor features, none of which were safety related.
Her estimate is that it may be 2024 before the industry again is back to what we think of as normal. Among the other things she is keeping an eye on are government incentives that reward the industry for producing certain types of vehicle.
Dziczek, a Flint native who once worked for the United Auto Workers union, is monitoring these to see if they are spread throughout different sectors of the market, rather than being directed at the most expensive and affluent ones.
The economy of the automotive sector is far more complex than it once was; similar Fed experts in Detroit and elsewhere analyze similar sectors to try to give those who make ultimate decisions about monetary policy as full a picture as possible.
You may, of course, still disagree with those decisions made by the Fed. But those making them do have access to some of the top experts on their subjects, and much of the best information possible.
Somehow, I found that curiously reassuring.
(Editor’s Note: A version of this column also appeared in the Toledo Blade)
