---
title: "The First Mac Predates Modern Central Banking"
description: "Explore how the 115-year history of the Federal Reserve shapes modern startup financing and venture capital markets amid rising interest rates."
categories: ["books"]
keywords: ["Federal Reserve","venture capital","startup financing","interest rates","central banking","inflation targeting","Tomasz Tunguz","The Repo Market","Broken Money","Theory Ventures"]
ai_summary: "Explore how the Federal Reserve's history impacts modern venture capital and startup financing amidst rising interest rates."
date: 2023-11-14
lastmod: 2026-07-28
canonical_url: https://www.tomtunguz.com/the-fed-history/
author: "Tomasz Tunguz"
---

12 years of zero-interest rate policies & then a sudden increase to 5.5% woke us all up to the Wall Street mantra : Don't fight the Fed. 

I've been reading to understand the history of the Fed & found some surprising facts from these two books : [The Repo Market](https://www.amazon.com/Repo-Market-Shorts-Shortages-Squeezes/dp/1952991285) & [Broken Money](https://www.amazon.com/Broken-Money-Financial-System-Failing-ebook/dp/B0CGNVNXK2/ref=sr_1_1?crid=3DXXF8BV2740E&keywords=broken+money&qid=1700018994&s=books&sprefix=broken+mone%2Cstripbooks%2C152&sr=1-1).

The US Federal Reserve Banking system is about 115 years old. It was created after the Panic of 1907. In October of that year, companies couldn't borrow money because a trading firm called the [Knickerbocker Trust](https://en.wikipedia.org/wiki/Knickerbocker_Trust_Company) went bankrupt trying to corner the copper market.

Lacking any government help, J.P. Morgan (the man, the myth, the legend, but not his bank) arranged for a group of individuals to lend money to keep the markets operating. 

European countries had instituted central banks. It was en vogue like [Panama Hats & frock coats](https://fashionhistory.fitnyc.edu/1900-1909/), but the US had no central bank to coordinate a bail-out.

So government formed the Fed, a group of 12 banks in different cities ([two of which are in the same state of Missouri](https://www.stlouisfed.org/on-the-economy/2016/july/why-missouri-two-federal-reserve-banks#:~:text=A%20article%20by%20Vice%20President,Louis%20and%20Kansas%20City) : St. Louis & Kansas City) tasked with deciding how much money to print & how much gold to buy to back up the dollars to stabilize markets. 

Only in the early 1980s did this change, after the US broke the gold standard & suffered stagflation in the 1970s. 

The Fed then shifted to a [2% inflation target](https://www.cfr.org/blog/history-and-future-federal-reserves-2-percent-target-rate-inflation-0), which has been the policy ever since. 

I wrongly assumed centralized banking & inflation-targeting were dated centuries old.  

But it's less than 40 years old in its current form.

The Apple computer predates the current incarnation of the Fed by nearly a decade. Inflation targeting occurred roughly at the same time as Microsoft's IPO.