Golden Spoon Investor

President Davidson looked at Chairman Monroe in silence, his discomfort evident.

The U.S. had weathered the savings and loan crisis, aided by low interest rates, and the economy was booming. Against this backdrop, the sudden announcement of a plan to raise the base interest rate was surprising—and, with midterm elections looming in November, it was particularly shocking.

Secretary Huxley, seated nearby, echoed the president's unease.

"Did you say you're planning to raise the benchmark interest rate?" he asked urgently, his expression betraying disbelief.

Chairman Monroe nodded calmly. "That's correct. The proposal is to increase the base rate by 25 basis points, from the current 3% to 3.25%."

Huxley leaned forward in his chair, immediately opposing the idea. "There's no sign of market instability, and the economy is booming. Why on earth would you raise rates now?"

President Davidson, sharing the sentiment, wore a displeased expression. Raising the base interest rate could slow the economy and harm prospects for the midterm elections.

Chairman Monroe, prepared for this resistance, began to explain. "While the economy has indeed benefited from low interest rates, inflationary pressures are mounting."

Davidson and Huxley's faces grew more serious at the mention of inflation. The scars of the 1970s inflation crisis still lingered.

"Fortunately, we haven't seen significant inflation yet," Monroe continued, "but if it does arise, it will severely impact the economy and be challenging to control."

He paused, noting the skeptical expressions of the president and his chief of staff.

"Fortunately, inflation hasn't materialized yet, but if it does, it could spiral out of control and severely impact the economy."

The mention of inflation brought serious expressions to their faces, memories of the 1970s inflationary crisis still fresh.

"So," Monroe continued, "we believe it's prudent to act now, raising rates slightly to curb potential inflation and ensure a soft landing for the economy."

President Davidson, arms crossed, broke his silence reluctantly. "I understand your concerns, but isn't this premature? There's no clear sign of inflation yet."

Huxley added, "Price stability is critical, but an interest rate hike risks derailing the current economic momentum."

Monroe silently lamented their true concerns, thinking, It's not the economy they're worried about, but the election.

But he kept his tone neutral and pressed on. "Inflation can emerge suddenly, particularly in an environment like this, where so much liquidity has been injected into the market," Monroe warned.

Huxley immediately countered, "Preventive measures are fine, but if investors panic and stock and bond markets crash, wouldn't that cause the very hard landing we're trying to avoid?"

Davidson chimed in, supporting his chief of staff. "I share that concern. Why not hold off for now and monitor the situation more closely?"

It was a veiled request to delay the rate hike until after the midterms.

Monroe, though uneasy about challenging the President's wishes, knew this was the best window for action. If delayed further, political pressures would make it nearly impossible to implement the necessary changes.

"Numerous indicators suggest that inflationary risks are building," he said. "If we wait and inflation takes hold, both the Federal Reserve and the White House will bear the burden."

The indirect warning struck a chord with Davidson, who frowned deeply. Any inflation crisis before the election would be disastrous.

Monroe softened his tone. "That's why we need a preventive hike—a signal to the markets that the Fed is vigilant about inflation."

Davidson hesitated. "Will the markets not react poorly to this?"

Monroe reassured him. "We considered a 50-basis-point hike to be more decisive, but settled on a cautious 25-basis-point increase to minimize shock. The market should stabilize quickly."

"Some volatility is expected, but a measured 25-basis-point hike sends a message that the Fed is vigilant. It's a calculated step to avoid harsher measures later."

Davidson turned to Huxley. "What do you think?"

After a moment's thought, Huxley replied, "Not raising rates would be ideal, but if it must be done, acting sooner gives us more time to respond to any fallout."

Davidson nodded in agreement. "Very well. Just ensure the Fed communicates its intentions clearly to prevent excessive market reactions."

"Understood," Monroe replied, relieved by the President's approval.

Although the Federal Reserve is independent, it cannot ignore the White House's influence. After securing Davidson's approval, Monroe stayed for a prolonged discussion on post-hike strategies.

Two Weeks Later: February 4th

Eldorado Fund office, with its sweeping glass windows overlooking the East River, buzzed with nervous energy. The announcement of the Federal Reserve's interest rate decision loomed, and the room held its collective breath.

Landon, perched on the left sofa, repeatedly checked his Rolex, muttering under his breath.

"I swear, time is dragging today."

Across from him, Seok-won sat poised and calm, a stark contrast. He cradled a teacup, sipping leisurely.

"Patience, Landon. The announcement will come when it comes. Agitation won't make it faster."

Landon fidgeted. "But what if the rate hike doesn't happen? That could destroy our position."

Andrew, seated nearby, nodded in tense agreement. His gaze fixed on Seok-won, admiration and disbelief etched on his face.

Seok-won set down his teacup. "The die is cast. Impatience won't change the outcome. I placed this bet because I believe in it. Nothing's changed."

The calm, almost indifferent demeanor of Seok-won baffled Landon and Andrew. It was an all-or-nothing gamble, and yet their boss seemed completely at ease.

Landon shook his head. "I could never be as composed as you."

Even Andrew, seasoned from years on Wall Street, found himself impressed by Seok-won's unshakable confidence.

Just then, a knock at the door broke the tension. Mason entered briskly.

"The interest rate announcement's out," he said.

Landon shot upright. "What's the rate?"

"The base rate is up by 25 basis points—from 3% to 3.25%." Mason handed Seok-won a freshly printed report.

While Seok-won received the report, Landon and Andrew exchanged glances. The hike had come as predicted, but its modest size left them uncertain. The response from the markets could go in any direction.

As Andrew sat on the sofa, turned his head back and spoke,

"You can go out."

"Yes" Mason answered and went out.

As the door closed, Landon leaned forward and murmured.

"Let's hope it's enough to shake things up,"

Andrew frowned. "It's too small to cause major ripples. This could fizzle out as just a minor adjustment."

Despite the concerns voiced by both Landon & Andrew, a calm smile lingered on Seok-won's lips.

"A massive dam can collapse from a tiny crack," he said. "The Fed's announcement has shattered the belief that low interest rates would continue indefinitely. That alone will sow anxiety throughout the market."

Setting the materials in his hand down on the table, Seok-won met Landon and Andrew's gazes.

"In a market so heavily leveraged, this is the catalyst that will stoke fears of a bubble bursting."

Landon frowned. "But it's just a 25bp hike. Why would anyone take it so seriously?"

A knowing smirk tugged at one corner of Seok-won's mouth.

"It's a small hike, true—but it's the first in five years. That change breaks the illusion of stability, introducing uncertainty. And uncertainty always equals risk."

"…"

"The Fed may simply be trying to suppress inflation," Seokwon continued, "but that approach underestimates the massive leverage that has built up."

He spoke with a calm smile, noting how intently Landon and Andrew were listening.

"If there's a sell-off and bond prices dip even slightly, hedge funds with heavy leverage could face enormous losses. Fear will drive them to cut their positions at the first hint of trouble. Let's wait and watch."

Landon clasped his hands together, muttering a quiet prayer. "I hope things play out as you predict."

Andrew, his face serious, added cautiously, "Just in case things don't go as expected, I'll be ready to adjust the position immediately."

Leaning back against the sofa, Seok-won nodded slightly.

"That won't be necessary, but it's wise to prepare. This world has a way of surprising us."

Before he could elaborate, a knock on the door interrupted them. Mason entered hurriedly, his expression tense, immediately capturing the attention of all three men.

"Long-term bond yields are spiking! There's a sell-off in bonds!"

The moment Landon heard the news, he shot up from the sofa, his eyes wide with urgency.

"Is that true? Bond selling is pouring in because of the rate hike?"

Mason nodded quickly. "Yes, it's happening now. Long-term bond yields are skyrocketing!"

Andrew and Landon exchanged stunned glances before turning toward Seok-won. Their faces, etched with surprise, demanded an explanation, though neither spoke first.

Leaning back with one leg crossed, Seok-won smiled broadly. "Gentlemen, it seems the floodgates have opened."

TL/n -

The Savings and Loan (S&L) Crisis was a financial disaster in the United States during the 1980s and early 1990s, marked by the widespread failure of savings and loan associations (also known as thrifts). These institutions, which primarily dealt with home mortgage lending, faced insolvency due to poor regulation, risky lending practices, and economic conditions. The crisis ultimately required a massive government bailout and reshaped the financial industry.

***

The inflation crisis of the 1970s was a period of persistently high inflation that significantly impacted the U.S. economy and many other developed nations. Known as "stagflation"—a combination of stagnant economic growth and high inflation—it challenged traditional economic theories and reshaped monetary policy.

Causes of the 1970s Inflation Crisis:

Oil Price Shocks:

The 1973 Oil Embargo by OPEC (Organization of Petroleum Exporting Countries) caused oil prices to quadruple.

The 1979 Iranian Revolution triggered a second oil shock, further increasing prices.

Energy costs skyrocketed, leading to increased prices for goods and services across the economy.

Loose Monetary Policy:

In the late 1960s and early 1970s, the Federal Reserve pursued expansionary monetary policies, keeping interest rates low to stimulate growth.

This fueled demand but also contributed to rising prices.

End of the Bretton Woods System:

In 1971, President Richard Nixon ended the dollar's convertibility to gold, effectively dismantling the Bretton Woods system.

This devaluation of the U.S. dollar led to higher import prices, exacerbating inflation.

Wage-Price Spirals:

Strong labor unions negotiated higher wages to keep up with rising living costs.

Businesses passed these costs to consumers in the form of higher prices, creating a self-reinforcing cycle.

Vietnam War Spending:

Increased government spending during the Vietnam War without corresponding tax increases contributed to budget deficits and inflation.

Agricultural Commodity Prices:

Poor harvests and rising global demand led to sharp increases in food prices during the early 1970s.

Impact of the Inflation Crisis:

Economic Stagnation:

Economic growth slowed dramatically, with high unemployment rates coexisting with inflation (stagflation).

Traditional economic policies struggled to address the unique combination of high inflation and unemployment.

Rising Costs for Consumers:

Rapidly rising prices eroded purchasing power, leading to declining standards of living.

Essentials like food, energy, and housing became significantly more expensive.

Decline in Savings:

High inflation reduced the real value of savings, discouraging long-term financial planning.

Fixed-income households, particularly retirees, were disproportionately affected.

Stock Market Underperformance:

Inflation hurt corporate profits and created uncertainty, leading to poor stock market performance throughout much of the decade.

Global Ripple Effects:

Other countries also experienced inflationary pressures, particularly those dependent on imported oil.

Developing nations faced debt crises as borrowing costs rose.