tv Book Discussion on Americas Bank CSPAN January 16, 2016 7:45pm-8:46pm EST
general. in fact, recall the 1990s there was a federal court that struck down portions of nafta and the clinton administration waited to put out a position until after they had heard from the solicitor general. to me that suggests a high degree of credibility and deference paid by the president the sg's office. >> book tv is on location at the university of wisconsin in madison. we've been talking with political science professor ryan owens, and here is his cowritten book, the solicitor general in the united states supreme court. >> this year's presidential candidatesyear's presidential candidates have written books introduced themselves to voters and promote there views. here is a look. jeb bush catalogs his e-mail correspondence during his time as a florida governor.
been carson argues a better understanding of the constitution is necessary to solve america's pressing issues in his latest book. former secretary of state hillary clinton looks back at her time serving in the obama administration. texas senator ted crews talks about his journey from cuban immigrant in the u.s. senate. carly fiorino shares lessons learned and rising to the challenge. former arkansas governor huckabee gives his take on politics and culture. in ohio governor calls for a return to what he sees as traditional american values and stand for something. kentuckysomething. kentucky senator rand paul calls for smaller government and more bipartisanship and taking a stand. more presidential hopefuls include florida republican senator marco rubio. he outlines his economic plan.
independent vermont senator bernie sanders has updated his 1997 autobiography entitled outsider in the white house to include his time in the senate and the launch of his presidential campaign. rick santorum says the republican party must focus on the working class in order to retake the white house. donald trump is written several bestsellers. his newest book outlines his political platform. kelly johnson is a presidential candidate for the libertarian party. seven principles of good government discusses his political philosophy and his time as governor of new mexico. finally governor chris christie and former governors martin o'malley and jim gilmore have announced candidacies but not released books. book tv has covered many candidates, and you can watch them on our website.
>> and now on to tonight's tonight's guest. roger lowenstein has reported for the "wall street journal" for more than a decade including stock market called and the intrinsic value columns. his work is appeared in publications ranging from the new york times magazine to bloomberg. currently maintains a column i want to let you know, he let me know there is a great review. we can read about that. tomorrow he had three children lived with his wife please join me in welcoming roger lowenstein. >> thank you very much.
glad. going to read a few passages as well that i hope convey some thought's. those of you who followed my career they know this is my 1st history in fact this is anyone who saw the republican debate may have seen the ted crews came out against the federal reserve and advocated the system going back to gold -based money's. tonight i would like to tell you what it was like when we actually had a system like
that. hopefully these was that was something more simple and basic. what is the federal reserve and why do we have it? if you think about an ordinary bank, they serve two functions which is self-evident i can go and biologist, but they serve a larger social function which is there way of getting money it would otherwise just sit there wherever rich were ever rich people keep extra money in their basements or in some safe in their yacht and move it to someplace where it's useful to society, to people who actually have a need for it. the central bank is just a banker to banks just as some people have excess funds, access funds, some
banks do. they have a few extra billion dollars. they can park their excess reserves in any network or reserve bank around the country which is what the federal reserve is. and obviously just like some people away saw that in a big way during the financial crisis in 2008 and 2009. the fed became the lender of last resort, it's really important in a crisis. is not only the banks to stop lending that the healthy banks: they see other banks in trouble they say i'm going to pull back. you get this dynamic whereby every bank does what it has to to protect itself and colin loans, but they are doing something that hurts the community at large, depriving the country of credit. the role of the central bank is to lean against the wind
and linda no one else's. after the mortgage crisis my editor suggests that it might be interesting and fun to look at what the country was like before we had a federal reserve and how we got one. i plunged in to the archives and this is the 1st time that i've done primarily or exclusively archival research which is a different world. there were lots of things i couldn't do. i can call of woodrow wilson and asked him why he had done such and such. it would have been not a very lively conversation, but i discovered that things get revealed and 2nd prettiest researcher, the federalists backed, the peak was in the summer.
a very hot place to live and work and the president rather delicate wife left out for new hampshire which was not uncommon for political spouses in the era. as a sensuous in another town we had a record day by day of what wilson was writing to her which committees in congress were giving him trouble, which congressman he was leaning on, who is was giving him trouble. it would not have that, the 1st couple would be in the same city to be talking on the telephone. the completely similar to now. it was a period great financial stress, financial crisis, people were angry at the banks, the banksbanks, the banks misbehaved. it's they are angry at the government. ted crews had nothing on the
populace of the late 19th and early 20th centuries. in that day and age's they're were democrats. now they're in the tea party wing of the republican party. the feelings are largely the same. people didn't like big banks, that in like washington and in more washington anywhere near the big bank itself. to tell the story through the eyes of one particular character. in front because it was not the father was very bizarre to say the least.least. it's the new play a very big role in the formation even though he was not an american. he was right in his memoirs that is hopeless, like the great cathedrals of europe
it is life was really one long struggle. he was boy into a wealthy banking family. he had three or four brothers involved in the family banking business. is that he quickly became the heir apparent. by his late 20s and they found the daughter of an american banking family, they got married it's been around 1899 to 1900 and they 1st settled in germany, but she wasn't too happy living away from her folks. long story short they relocated to new york. very quickly after war broke out he realized how different the system and adopted country was.
allall the banks made the reserves in the central reserve. in americain america each bank kept its own reserves. 's rainy day money, ask your money. i say kept their own, they would keep them in a vault or park them in a bigger bank the paid higher interest. the bank in tacoma might've caps on this reserves in a bank here in seattle. the bank in seattle might've kept its reserves in a bank in san francisco. but whenever there was tightness whole system would backup. they would call the money and and you get this money tightness and sometimes a panic. this would happen to some extent every fall when the harvest season came in every farming community command back then they hope more than half the population of the us.
farming communities would need cash to fund the harvest, pay field hands, finance equipment, great houses, all of that cash drain out of the cities and there would be a mini panic. paul warburg saw this very soon after he immigrated and he was absolutely astonished. i want to take you to an episode, the reaction right after. warburg was shocked by the primitiveness of american finance. thanks in germany function that near military cohesiveness. thanks cohesiveness. thanks in america suffer from an ethos of extreme individualism. 's in 1903 soon after plans on wall street his
brother-in-law and the senior partner that he had penned some thoughts on the defects of american banking. the key problem was the lack of the central reserve's. he read the read the paper and agreed with the substance of it. however, warburg has misread the psychology of the american people who would never accept any institution resembling a central bank. he warned his junior partner not sure his paper with others, but as a teaching exercise he offered to show the paper on a confidential basis to a well-placed friend james a stillman who is president of the national city bank forerunner of today's citibank and one of the prominent bankers in new york. a day or two later he looked up from his desk. a man of legendary reconnaissance.
famous conflict between alexander hamilton and thomas jefferson. alexander hamilton wanted a national bank that existed in england and thomas jefferson was basically a farm boy and didn't like banks and did mike big banks and didn't trust bankers. they took their case to george washington in the early years of washington's presidency. washington signed with hamilton, thought it made a lot of sense and there was institution called the bank of united states which is a prototype federal reserve but he mistrusted particularly among world people people away from the east coast remained in after 20 yea congress got rid of it. very quickly after that the country of the very bad inflation. james madison and the congress chartered a second bank of the united states. we did the same thing all over again. the second bank was really quite a success and before the second bank of america they had a
polyglot of currencies that each bank in every state issued its own currency in the second bank rationalize this and organized the debt of the country pretty got the young republic on a more sensible and organize footing but andrew jackson didn't like national banks anymore than thomas jefferson did and so in the 1830s the second experiment in national banking was abolished as well. around the time alexis de tocqueville came to the united states and he was just mystified at the venom that americans held for the national bank. he wrote in his famous book democracy in america that americans seem to be obsessed with one great fear was she described as the fear of centralization paul warburg is a settlement of america was adjusting to that very same attitude that really hadn't changed a whit.
werber didn't defy shift but began to study the system or to talk on the ideas at least quietly among his small groups. he decided the american system was like a town in which every home had a pail of water but there was no fire department. that might have been fine if you wanted a drink of water but it wouldn't work very well if there was a fire that you had to put out. because of this no central bank every individual bank had to keep more of its reserves in its roll out in case there was a crisis that would force it to close down so they lack the benefit of collective security that the banks in centralized systems in europe had. warburg began to pound this doctrine. towards the end of 1906 he became very worried about the financial outlook of the united states. he was invited to a dinner at the home of columbia university professor in new york.
most people at the dinner work, missed and bankers. warburg began to hold forth on what he felt were the risks facing the country and denying what he felt were the ills in the american banking system. people were mesmerized. at the end of the evening is hosted to warburg you have to write in have to publish. you have to tell your country about this. warburg said impossible my writing isn't good enough and so on. but in the next year something happened. there was a terrible panic in the american banking system and certainly everybody wanted to hear about warburg's ideas. just as warburg had predicted to james hillman some years earlier when this panic occurred the biggest bankers in new york people like stillman, people like jpmorgan were thrust into the center of it. they suddenly have the job of deciding which banks were worth
savings in which banks couldn't be saved, how to organize loans for the banks that should be saved. this of course was work that ben bernanke and the federal reserve did in 2008 but there was no federal reserve in 1907. i thought if i joined the action now when it struck the institution called knickerbocker trust a fairly large bank in new york morgan and stillman had sent an underling by the name of ben strong to the knickerbocker to make a report. the knickerbocker was housed on 34th street and fifth avenue and corinthian temple designed by stanford white. the sidewalk in front was besieged by a mob of depositors some of whom were war sac chills
with which they have to carry off sack loads of cash paid inside the bank stacks of green currency bound to the thousand dollar loss for piled on the counters. as ben strong whenever the books at the riverbank he could hear depositors in the public area clamoring for their money. he wrote the consternation of the faces of people in that line i shall never forget. by little after noon on tuesday october 22 the knickerbocker had paid out eight $9 and suspended operations. strong reported that he could not in such timed dodge for the knickerbocker's policy. jpmorgan therefore decided not to intervene. in leading the knickerbocker fail morgan knew he would be unleashing frantic runs on every other trust in the city. new york stressed over and matter of several weeks lost a remarkable and devastating 40% of their deposits. even worse at the end of october
the local clearinghouse association of new york banks was forced to take the drastic step of authorizing banks to settle accounts with one another through certificates, paper substitutes for money that they invented overnight rather than with cash. the panic had now reached epic proportions. as the panic spread clearinghouses and bank associations and scores of other cities and of their own versions of invented money. by mid-november approximately half of the country's larger cities were using loan certificates or other substitutes for legal money. some smaller towns were no clearinghouse existed local bankers improvised setting up a temporary committee as it were on the front porch and into thirds of the city's population above 25,000 larger cities, thanks suspended cash, suspended cash withdrawals to a greater or lesser degree. for example in council bluffs
iowa a limit was imposed a $10 per customer rated atlanta $50 a day and $100 a week. banks in providence rhode island adopted a convenient policy discretion betting withdrawal on a case-by-case basis. even though the clearinghouses and their inventive certificate substitutes for money divided a measure of relief they were genuinely recognized an issue which is a serious drawback. new york banker limited checks sent for collection are being returned. money in fact traded at a premium. those who needed cash were forced to write checks were more than 100% of the desired some money lost its normal fungible characteristic. it was suddenly worth more in one place than in another. at this point stillman the banker who had rebuffed warbird some years earlier feeling that the american system was so
strong and viable began to experience a change of heart and a brief exchange as he makes his way to -- several weeks into the panic is stillman ventured the short distance. unannounced to made his way to the banker he had first met four years earlier. he found in their as he was before. warburg he barked, where's your paper? too late now mr. tillman warburg replied sadly. what has to be done cannot be done in a hurry. if reform is to be secured it will take years of educational work to bring it about. toward the end of that year after panic began to subside were berg finally got the audience that he wanted all along. financial reform in the u.s. congress was controlled by one man, senator named nelson aldrich of rhode island.
aldrich was a defender of the status quo. he was very conservative, very close to the business establishment. he he had been opposed to the central bank or really any sort of significant reform in the banking system and since he was the chairman of the finance committee he called the shots. but the panic of 1907 disturbed him and he began to wonder for the first time whether he should look into at least the possibility that the system might need to change. aldrich made increase on wall street and he found his way to jacob's office and became with the narrow question. he wanted to ask shiff about how banks how the central bank in germany issued treasury bills. shiff immediately recognize an opportunity and said there was someone else in his office were more qualified to speak on such matters and led the senator to paul warburg's office. so for the first time now almost
10 years after he arrived in the united states were berg was face to face with someone who actually have influence and power in the u.s. government. aldrich kept his questions neuro to warburg began to tease him into the broader subject of broad performance centralization. aldrich perhaps just to get out of the room and be on his way told warburg he should feel free to send him material for further reading. after aldrich left shift -- shiff is a man of caution applies to warburg that he was making a great mistake to write anything to aldrich. the very next day were berg sent aldrich of paper called a plan for a modified central bank. four days later he wrote to him again. the volcano is now in to. aldrich did not write back but
warburg had clearly made an impression on him. thnee xt year in 19 away congress created something called the national monetary commission to study the defects of the american system and possibly recommend reforms. aldrich was named the chairman. on the floor of the senate he said something that betrayed he impression that warburg had made when he referred to in that quote thoughtful students of the american system, thoughtful students of economic history who were led by the experience of other commercial nations have been led to conclude that we should adopt the central bank and for political cover to aldrich quickly went on to add that he did not think america was ready for such a step but he said sunday it would. that was a very significant step for public figure to make. that summer aldrich led a congressional study to the
national monetary commission on a trip to europe to study the systems of europe. he hired a harvard or kesser. they spend weeks in london and paris and berlin and at the heart of their investigation were interviews with officials at the bank of england and the bank of spain. aldrich delegation was really focused abovell on one question. in america banks have this need to keep all this reserve money in the till and they would be forced to close their doors. how was it different? how did the banks operate? for the last reading now we will join aldrich and the commissioners as they make their way about europe. at each central bank the americans were given the feel like the representative of a
system. the astonishment of what they heard and the minutes of these meetings were all available to me, the astonishment of what they heard was palpable to the europeans portrayed their institutions as superseding parochial or private interests. their policies seem universally accepted. the entities took place as the social harmony prewar europe. the picture might not have been so harmonious. aldrich pressed their hopes and the question of reserves create who held them, what were their requirements, what were the rules regarding the holding of cash? we are paying consistent response created in varying ways with the confidence of their centralized systems albeit the need for the brigid regulations of american banking. but london bankers could not relate to the american elasticity. how then the americans wonder to the bank of england adjust the currency to supply to meet the demands of commerce?
it was in france for the visitors were truly humbled. aldrich explained in the united states the questions of proper relations between cash in hand and -- is considered important. what portion of deposits were backed by cash reserves? the governor the of the bank of france shook his head with a weary sigh. i think he said you pay more attention to the quantity of reserves than to the quality but surely aldrich pressed france had laws, regulations some stipulation governing the proper proportion. the reserve requirements adhered to america replied. on account of the facilities offered by the bank of france for the rapid conversion in a crisis at tanking assets into ready money. the americans persistence -- persisted what determined the fluctuation of the value of the node's?
despairing of his ability to explain the power of the central reserve to this governing, it is the sun he said perhaps it would be more correct to say the alternating seasons. now when the monetary commission came back they held hearings read by aldrich in new york city could warburg was invited to the presentation. he spoke of course in favor of reform but by now he was quite discouraged via the climate of the american public and the ability of performers to go too fast to quickly so he gave a rather, pitch for a modest proposal piecemeal and so one so as not to alarm the public. when he was finished aldrich came over to him. mr. warburg he began i like your ideas. remember aldrich had just returned from europe. i have only one fault to find
with him. were berg asked about the fault. aldrich shot back, you are too timid about it. you say we cannot have a central bank. i say we can. as warburg was to recall them poignant terms in that quote it is easy to imagine but hard to describe the mixed feelings of joy and bewilderment and to which this remark to me. for the first time i felt confident that genuine banking reform was within grasp of the united states. i don't want to give away too much of the story. there were many twists and turns down the road for warburg and objects and others including an instance of some of you may heard about out when it's danger than fiction trip to rhode island where feeling that the i.d. idea of a central bank
would be so unpopular they actually cut the first draft in secret. the story past the democrats soon after that and to woodrow wilson and to his own efforts to get legislation passed over the objections of many people in his own party and in fact his own party platform. now we can deal with some questions that warburg was very right to be wary of the public response. i think warburg and by the way as he got caught up in this battle he change citizenship and went on to join the federal reserve when it was formed in 1914. i think today he stealing very much at home in the climate than tacitly have today. are bills in both houses of congress subject monetary
decisions to the whims of elected officials and keep the central bank from making tough and sensitive decisions that has to make. there is one difference i'd like to point out between then and now. in 1913 there were tremendous conflicts politically culturally bankers didn't agree with farmers, bankers on wall street didn't agree with the bankers in the countryside. republicans and democrats were split. most of all people in the eastern seaboard in the big cities were very much at odds with people of the rural areas and the rest of the country. the people who felt deeply about this issue were able to study it quite intensively for a number of years. they debated it, they cut through their differences and they arrived at enduring solutions. when i look at the political
process today i'm not so sure that we can still do that. so i want to thank you very much and happy to take questions. [applause] i guess, take turns going up to the microphones. >> is it true that the federal reserve lobbies not to be audited and if so why do they not want to be audited? >> the federal reserve is audited by the gso. the bill that rand paul has emitted to the congress to "audit the fed" would call for monetary decisions so they are basically decisions about interest rates going up or down, buying bonds and selling bonds and so on to receive day-to-day scrutiny by the congress. in terms of the books the federal reserve but their assets are, that's public and not only public but it's audited.
audits it are pretty inflammatory word but it's really about subjecting the fed to the political process. >> when do you think they should raise rates again? [laughter] >> you know janet yellen is in a tough spot in the paul warburg area the federal reserve is limited by the circulation was limited by the amount of gold. circulation is limited just by whatever the seven governors and five members of the fdic decide. obviously they would like to raise rates. not a good idea for money to be free. it makes it too easy or overly encourages people to make investments. on the other hand the economy keeps sending back the wrong signals and the rest of the world economies are basically
going in the other direction. the u.s. faces in 1920s when the federal reserve was very concerned about a depression in england. they wanted england to go to the gold standard so we lowered rates to help out england and that resulted in the final stages of the stock market of the 20s. how much janet yellen pays attention to the rest of the world i think she is a real problem. there will be getting into the election season and that's going to be a problem. i haven't answered your question. [laughter] >> hi i wanted to ask you about large banks that are -- with other large banks of the federal reserve and in their modern i.t. system are they doing that to balance to have the right reserves because it's changing every 24 hours? is that how it works?
>> they are doing it because some are short and some are long. some have a surplus. the reserve requirements, it wouldn't be necessary for bank to lower its reserve requirement to feel they want to borrow more. you don't want to get down to your last dollar before the reserve requirement and particularly now when federal runs are rated so low. what is it, 51 hundredths of a%. it costs virtually nothing to have more cash. the big problem it faces banks large and small now isn't a lack of cash, talackova place to put it that way rates are so low. >> i just wanted to ask you quickly do you have any comments on quantity easing desk qualitative easing or how the feds can write off all the securities they have? >> quantitative easing was a program that bernanke instituted
unlike the normal policy of the fed buying treasury bills short-term securities. you brought longer-term securities and it still holds about 4 trillion on its books. it really has two choices. actually it has two choices. at some point you could sell them off and just as buying bonds stimulated the economy selling them off would have the opposite effect or it could just wait until these bonds matured. and let it run off over time. there would be some mix between the two. they would want to send the country back into a recession. >> thank you. >> my name is john yost. is it on the lord of the federal housing authority and the poor and middle income. i have a question for you because alan greenspan basically
said we can print unlimited greenbacks because we have her own central bank and also because we have a federal reserve branch. now, how do we expect our economy main street and our wall street to exist and to continue with the 17 trillion-dollar deficit? now as we know maybe most of you are not struggling but if this continues we will all struggle. there might be bred lines and things like that. >> you have asked a question -- a couple of questions. let me start with that. the debt that people talk about, the federal debt is the difference between what the federal government spends each year and what it takes in taxes and actually it's 3% or
something now. it's not a big deal. it's not terrible thing for the government to borrow a little more than it spends each year. they borrow a lot more during a crisis. i was a good time to stimulate to be spending more. i've that's fiscal policy. that's the round up what the congress takes them and what spends about the treasury does. basically tonight we are talking about monetary policy what the federal reserve in effect prints and stimulates and you talked about two risks. they actually go in opposite directions. one is the hardship of the people in the middle or lower end of the ladder, lack of good jobs, lack of affordable housing and all of that. the other is if the federal reserve prints too much money for people who needed obviously the mother -- the money wouldn't be worth anything. it's not easy to say well we should just print unlimited amounts.
greenspan may have said that but he didn't mean it and he didn't do it. he may have printed more than he should have at times is not an easy job but it's not just a question of printing unlimited amounts because that won't help the people you are talking about. a good example i think if there was a lot of pressure on government to make loans, housing loans cheap and easy and earlier said the 2000. that was a nice idea but at the end of the day loaning money to people who can't pay it back as bankers who got wrecked was loaning people 100% of the purchase price making loans for people who had proof of their assets that didn't end up helping them and didn't end up helping the banks and didn't end up helping anybody. we have the crisis said these things involve a fine line. i'm going to take the next question.
>> i was wondering if you believe the federal reserve isn't sure mental and nationalizing the debt of the investment banks and us last housing bubble and if so basically passing that debt on to us so whether it's fair to question the constitutionality of allowing a semi-autonomous organization like that to have that kind of power? >> the constitutionality of it was questioned before the supreme court in 1918 in mcculloch versus maryland and they said it was constitutional. the actions of the federal reserve in loaning money to aig, congress in the 1930s loosened up the terms under which the
federal reserve could lend money to non-banks such as aig. they did that because the federal reserve's efforts during the depression were notably ineffective. we had unemployment go up to 25% it lasted 10 years. people thought if we were going to have a federal reserve that at least have to be more effective is under that provision which i believe was legislated 1935 the statute calls for exigent circumstances. they could do more. the dodd-frank act by the way passed after the crisis. it restricts the fed from do not boo is not clear if we had a future crisis and aig was about to go down whether the fed could make that long. my belief that restriction was a grave error. you don't want fire departments using too much water but to tell them at a time if there's a fire is the fault of the people who are reckless with matches and
they ought to learn how not to start these fires. you are getting a lot of blocks with turn down. the money that went into the banks i would point out was mostly from the treasury department under the tarp bill. that also obviously was authorized by legislation. there's an old saying about there are no atheists in fox holes. it's really easy to be hung up on a theoretical point when you are standing in seattle but when you are in the middle of a crisis and bank after bank is going down and there's a run on the money markets and unemployment has shot up to above 10% going who knows where and 20 million americans are over the next mortgages they
can't pay back i would be favor of letting public officials address the problem, not to have another great depression which i'm glad they didn't have. >> the federal reserve is not a public agency. >> it is a public agency. >> not according to the courts. >> the federal reserve board in washington is very much a public agency. the reserve banks themselves are under the dominion individual banks around the country are under the dominion of the federal reserve and subject to it. they pay dividends to shareholders whether private banks that the federal reserve and its leadership is every bit a public agency. it's created by an act of congress and congress could uncreated in a pen stroke tomorrow. it's every bit a public agency. >> it's appropriate for them to be in gauging in a political decision? >> this is going to be it
because we are getting into a debate but everything that any politically creative body does is ultimately political. after all the people it on the federal reserve were appointed by the president. so ultimately they are going to be political in the same way that people in any agency were appointed. the people of the fcc, the reason they haven't agency structure is to create some level between them and the people running for office say congress is running for office promising people keep interest rates and cheap money. that probably wouldn't be a good way to run the monetary system but the point you asked about was very much at issue in 1913. we didn't have public agencies. the commerce commercial and was the one that existed then so the idea of subjecting private industry to public supervision
was very radical. the first draft of the federal reserve act had bankers in the federal reserve board chosen by bankers and william jennings bryan who really had gotten wilson's nomination as secretary of state and although he had lost two elections was to very popular among democrats said that was wrong. if we were going to create this new institution he said that people ought to be public servants. all of them should be appointed by president andy threatened to resign. that would have taken down below some administration because bryant was sub popular. wilson went to an adviser later a very famous adviser. louis brandeis and he said i'm in a pickle what do i do and brandeis said you are not in a pickle because bryant is right. this is a public entity and
these new governors of these institutions should be responsible for the public so you should nominate them and that's what happened. >> thank you for the time this evening. more personal than professional but as someone who's been steeped in the federal reserve and history current, present and the future do you have any book reviews as a student, something that you have read other than your own publication that you think would be a wise read for the current political and economic crisis or situation? >> what book would you recommend? what's on your bed stand? >> if you want books on financial crashes or so on, i really like the great crash by john kenneth go brave. if you want a book that explains
how trade works in the tensions between people who want to put up barriers and people who would like to see trade be with liberalized there's a wonderful little book by an italian economist who works in washington. read like a novel, believe it or not. i can think of more to come over afterwards but those are two that i like. >> thank you very much. >> when you become off the gold standard and what were the affects? >> after answering these other questions i would love to us to hit the difference between glass-steagall and dodd-frank. >> we came off the gold standard in stages. the issue with the gold standard was that the federal reserve
u.s. government is promising to back every dollar with gold and that could issue more dollars than it had gold pre-to attract gold it began to raise interest rates in the heart of the depression. that had a very punishing effect on the economy of at the worst time. britain went through the exact same process. they were in the gold standard as well. in 1931 they went off the gold standard with chaput pressure on us as well. franklin roosevelt took apart way off because he closed the gold window to citizens so people could no longer take the federal reserve note down to the branch of the federal reserve and turn it in for gold however the gold system wasn't operative in the depression years or
during world war ii obviously but we were in a half gold system in the 50s and 60s and the idea was we just printed whatever money we printed to me is that in america. europeans have the right to come back and asians in other countries too to turn in their dollars for gold. that system worked until we had inflation in the late 60s with the vietnam war and so on and the french for some reasons of their own for feeling nationalistic and didn't want the dollar to be the king of the hill. they began shipping dollars and demanding gold. mix in one day stunned the world and said the window is closed. you can accept, you can use dollars are not but if you come here and say we are going to turn it in to give you the same federal reserve to write back because that's all that's worth.
treasury secretary john connolly at that point put a nice twist on it. he said the dollar is our currents in your problem speaking to other countries. some of these things, the expectations were that the dollar would completely lose credence. nobody would want it. it would be replaced by first the mark and then the yen and the euro. this was said again during the bernanke era when there was so much activity creating these dollars. in fact the dollar has maintained its power and more so on the world markets. the reason people have faith in the dollar or two reasons, because it has purchasing power in the united states and because it's based in a country where the laws of the legal system are trusted and there is a transparency so for instance
some people have suggested the chinese currency will renew its currency but no one knows how much currency is out there with the debts of the assets. they don't have the same transparency. they may get there someday with the system that we have. the dollars really rest on the american economy and system and the lack of gold has not affected at all. very quickly glass-steagall the founder of the federal reserve act in 1913 and later in his career co-authored glass-steagall which separated banks from investment banks and that was eroded and done away with in the 1990s. dodd-frank doesn't really touch touch -- dodd-frank is a series of regulations that try to restrict banks and tried to stop
what just happened with the mortgage crisis from happening again. >> thank you so much. very insightful. a couple of questions, two-part question. first in the two years following following -- in 1913 we had two world wars. we had a great depression and social security --. how do you think american history has changed if we didn't have the federal reserve and that period? a related question is given the lessons of public policy and what happened across the globe what do you think, how could we have amended or changed if the creators had been able to
foresee all the changes? >> i can't look at 100 years what would have happened without it but one flaw in the activesync was they were so concerned with not offending people who didn't want a central bank and also wanting to achieve warburg's purpose which was a reservoir. they met halfway by having these banks around the country federal bank in san francisco atlanta and so forth and also having a board in washington but they were very day -- vague about where the power would reside in the system. when the act was passed and became law immediately there was a struggle between the three parties. they have been to individual reserve bank by the strongest bank which was in new york and the board of washington and the treasury secretary who for the first couple of decades have the
federal reserve board. it was quite unclear in the depression who was responsible for policy. some people felt after all the federal reserve bank, the bank's were the banks in the country and the board in washington was just supervisory. the board should be the engine of decision-making and effective agency and others thought the treasury and if you read the notes from that period you see some of the bank presidents were loaning and some aren't. in particular atlanta was very dovish and atlantic district did better than the rest of the country for a significant amount of time during the depression. there was no one person such as ben bernanke in 2008 who said we have a real problem. someone has got to act and that someone is going to be me. over time the battle kept going on and during wars the
government wants cheap financing and the fed has to go along with it. this happened after world war i to about 1951. the rates were still very low, 2% and became clear that the fed thought was time to let rates go up. harry truman was just aghast. he didn't understand her except for a moment the idea of a federal agency and when he couldn't get his way in private he announced public we at the fed had agreed to keep rates at 2% which they had done. he fired one of the board members and appointed someone else from the treasury to be thought with the his pigeon on the federal reserve board. they wouldn't back down and from then on it's been a more independent agency and powers
are raised in washington. i will say one of the effects of the recent crisis is the federal reserve is work much more closely with the treasury. bernanke and now yellen. they meet often with the treasury secretary in the president coordinating federal reserve policy with the government which might be appropriate for a crisis but i think at least until now and at some point janet yellen is going to have to tell jack lew the treasury secretary that she is running the fed or the fed's independence will be compromised. >> do you believe the historic period of interest rates is leading to asset inflation and if so could that have negative repercussions?
>> it did have negative repercussions. it's just hard to tell. it's hard to tell how distorted they are it has there was a lot of capital out there so if he said let's have rates at a more national level what would that ye? i doubt it would be up to 6%. there's a lot of capital and their weren't a lot of people who wanted to borrow or invest. it's possible but it's hard to know these things. it's to me obvious bubbles as with the real estate crisis. not that i said it was obvious then but these things are easier to see in retrospect. it's not like we had in 1999.
probably some inflation. anyone else who hasn't asked a question? we will take one more from this gentleman. >> i just want to follow up on something you said earlier that i thought i heard you say the abolition of the gold standard the dollar had not lost any of its buying power. >> i said it hasn't lost its power over the world markets. there was a terrible completion the 1970s. the later inflation generally has not been severe. it's about 2% a year except for that period and it's true you can look at these figures like a dollar 1920s only worth 19 cents today. that is real significant. if you are around in 1920 and you are still around today but life doesn't work that way. what happens is