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tv   Book Discussion on Americas Bank  CSPAN  February 16, 2016 8:00pm-8:59pm EST

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>> coming up, roger lowenstein on "america's bank: the epic struggle to create the federal reserve" about the creation of the federal reserve. and jen gerald posner on "god's bankers: a history of money and power at the vatican." and later we talk to menzie chinn about "lost decades: the making of america's debt crisis and the long recovery" on america's debt crisis and afterwards. that is followed by after words with ben bernanke interviewed by sharon brown. >> and now on to tonight's guest. roger lowenstein has reported for "the wall street journal" for more than a decade including his stock market column and
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intrensic value column. he has written several books including origins of the crash, the end of wall street and tonight's topic of discussion: "america's bank" he let me know there is a great review of it coming out in the "washington post" tomorrow so we can read about that tomorrow. he has three children and lives with his wife in newton, massachusetts. please join me in welcoming roger lowenstein. [applause] >> debra, thanks very much. a wonderful introduction. i am glad i don't have to talk about dinosaurs. i don't know much about that. what i'm going to do is mostly talk to you and read you
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passages as well that i mope high pressure c hope conveys the drama of the story. this was my first history story. it was the most exciting project i have been in. the people i wrote about reminded me of people on the scene and the book is full of stories. last night, anyone who saw the republican debate, you saw rand paul came out against the federal reserve and tasaid ther is no point in having a federal reserve. tonight i would like to tell you what it was like when he had a system like that back a hundred years ago. but before i get to that i want to start with what is the federal reserve and why we have it today.
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if you think about an ordinary bank they serve two functions. for people that don't have enough money they can barrow and for people that have money they can go park it and earn interest. but they serve a larger function besides helping out those two groups. they are a wait of getting money in other places than wherever you keep money and move it to a place where it is useful in society where people who have a need for it. banks fill that social function. a central bank is a banker to banks. just as some people have access funds some banks have access funds. they have a few extra billion washing around. they can park their excess reserves in any network of reserve banks around the country which is what the federal reserve is. obviously just like some people
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banks run out of money and they can barrow from the federal reserve and we saw that in a big way in the financial crisis in 2008-2009 when the fed became the lender of last resort. it is really important in a crisis because what happens in a crisis is it is not only the sick banks that stop loaning but the healthy banks, when they see others in trouble they say i will pull back and i better stop lending, and you get this dyn dynamic where every bank knows what it has to do to call in loans but they are all doing something that hurts the community and that is depriving the country of credit. and the lull of the central bank is to so-called lean against the wind and lend with no one is. after the mortgage crisis, my editor suggested it might be interesting and fun to look at what the country was like before
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we had the federal reserve and how we got one. so i plunged into the archives and this was the first time i have primarily done exclusively archival research and it is very different than reporting. there were lots of things i could not do. i could not call up woodrow wilson and asked him why he did what he did. but i discovered things get revealed to historian that might not to a contemporary historian. washington then like now, washington, d.c., was a very lot place to live and work. ellen wilson, the president's delicate wife left town for new hampshire during the summer,
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which wasn't uncommon for political spouses. so since she was in the other town we have a record day-by-day what wilson is writing which congress he was leaning on, who in the cabinet was giving him trouble. today you would not have that. the first couple would be in the same city or talking on the telephone and so on. in other ways you would feel completely similar to now. it was a period of great financial stress, there was a financial crisis, people were angry at the banks, many of the banks misbehaved, they were angry at the public. ted cruz has nothing on the p populus they were democrats at
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the time but the feelings were the same. people didn't like big banks. they didn't like washington and want washington anywhere near a big bank itself. i will tell the story of one character who had to confront these stories. i say confront was he wasn't an american. his name is paul well burg. he played a very big role in the story. he would later write in the memoirs was his hope was the federal reserve would be a great m m m monument like the great cuth cathedr cathedrals in europe. he was born to a wealthy banking family.
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he had three or four brothers involved in the bank business but he inherited the bank and was set to run the bank. but he fell in love with an american banking family daughter nina lowe. they got married around 1899-1900 and paul and nina first settled in germany but she wasn't too happy living away from more folks and long story short they relocated to new york. very quickly after he got to new york he realized how different the system in an adopted country was. in europe, all of the banks had their reserves in this central reserve. in america, each bank kept its own reserve. when i say reserve i mean rainy day money and extra money.
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when i say kept their own they would keep it nathaniel philbrick vault or a bigger bank down the block. a bank in tacoma might have kept some reserves in a bank in seattle and a bank in seattle might have kept their reserves in a bank in san francisco. but the bank in tacoma would call in the bank to seattle and the bank in seattle would go to san francisco and you willed you would sometimes get a panic. this would happen every fall whether the harvest season came in every farming community and back then they were half the population of the united states. the farming communities needed cash to pay the field hand, finance the equipment and all of that. cash would drain dra drain out
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cities and there would be panning. rates in new york city would go up a hundred percent sometimes. he saw this happening and was absolutely astonished. i want to take you to an episode that shows his reaction right after he moved to new york. he was shocked by american finance. whereas banks in germany functioned with military cohesiveness banks in american suffered. as credit tightened, each bank pulled loans. after a plunge on wall street they led on to jacob shift, and his brother law and senior partner that he had pinned some thoughts on the defects of american banking and how to cure them. the key problem he outlined was the lack of a central reserve.
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shift read the paper and agreed with the substance but said he had misread the psychology of the american people who would never accept any institution like a central bank. he warned him not to share the paper with others but as a teaching exercise he offered to show the paper to a well placed friend who was president of the national citi bank, forerunner of today's citi bank and one of the most prominent bangladekers new york. a few days later he came over to find a man above him starring at him. finally he spoke. how is the great international
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finance? he said don't you think citi bank has done well? he agreed. why not leave thinks alone? he didn't want to reply. but finally he said your bank is so big and so powerful mr. stillman when the next panic comes you will wish your responsibilities were smaller. stillman went off in a handcuff and warburg went back to his work. he had stumbled on the original conflict between federalism and an anti-federalism and big bank and small banks and this goes back to 1791 and the conflict between hamilton and jefferson. hamilton wanted the national
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bank and jefferson was a farm bank and didn't like banks, didn't like big banks. they took the case to george washington in the early years of washington's presidency and washington sided with hamilton, thought he made a lot of sense, and they made the bank of the united states which was a prototype for the federal reserve sorted. but he mistrusted it particularly among world people, people away from the east coast and after 20 years congress got rid of it. very quickly after that the country had a bad inflation and discovered it needed a bank and james madison and the congress chartered a second bank. it was the same thing all over again. the second bank was a success. before the second bank in america had a poly glob of currency and each bank issued a
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currency and it got the general public on a more sensible and organized footing but andrew jackson didn't like national banks anymore than jeffson did. so in the 1830s the second experiment was abolished as well. a famous french political scientist came to the united states and he was mystified at the venom americans held for the national bank. he wrote, in his famous book democracy in america, that americans seemed to be obsessed with one great fear which he described as the fear of centralization. and paul warburg was adjusting to that same attitude that had not changed. warburg didn't defy the shift but began to study the system more and talked up his ideas quitely in small groups. he decided that the american
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system was like a town in which every home had a pail of water and there was no fire department. that might have been fine if you wanted a drink of water but it would not work well if there was a fire to put out ft every bank to -- every bank had to keep reserves in case they had an emergency. at the end of 1906, the financial outlook of the united states was looked upon. and there was a dinner and most of the people at the dinner were econ economist and warburg brought
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forward what he thought were the wills in the american banking system and people were mesmerized. at the end of the evening people said you have to write and publish and tell the country about this. warburg said impossible my english isn't good enough and so on. the next year something happened. there was a terrible panic in the american banking system and suddenly everybody wanted to hear about warburg's ideas. just as warburg had predicted to james thurmon years earlier when the panic occurred the biggest bankers in new york, people like stillman and jp morgan were thrusted in the center of it. they had the job of deciding which banks were worth saving, which banks couldn't be saved, how to organize loans for the banks that should not be saved.
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this is work ben bernanke did in 2008. but there was no federal reserve in 1907. i thought we might join the action during the middle of the panic when it struck an institution that was a fairly large sized bank in new york. ben strong is sent to go over the books and make a report. >> the knickerbocker was housed on 34th street with a temple designed by stanford white. the sidewalk had people with satchels which they hoped to carry off cash. stocks of green currency was piled on the counters.
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as ben went over the books in the bank he could hear the people clamoring for their money. he wrote the faces of the people in that line millions of many i knew i shall never forget. on tuesday october 22nd, the knickerbocker paid out $8 million and suspended operation. he reported he could not drive there. jp morgan decided not to intervene and morgan knew there would be a frantic run on every other trust in the city. new york's trust over the matter of a couple weeks went through a remarkable and devastating 48% of their deposits. even worse, at the end of october the local clearing house association of new york banks was forced to take the drastic steps of authorize banks to
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settle issues with paper substitutes rather than cash. the panic reached epic proportions. half of the country's larger cities were using bank certificates. local bankers setup a temporary committee on the front bank in some areas. with two thirds of the city with population above 25,000, larger cities, banks suspended cash with drawls to a greater or lesser degree than ordinary depositers. in council bluff, iowa, a limit of $10 a customer. banks in providence adopted a
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case-by-case bases policy. even though the clearinghouses provided a measure of relief with their substituted they were generally only granted in the city of issue. other banks sent for collections are being returned. money in fact traded at a premium. those who need cash were forced to write checks for more than a hundred percent of the desired sum. it was suddenly worth more in one place than in other. and at this point, the banker who had rebuffed walburg some years earlier, feeling that the american system was so strong and viable, began to experience a change of heart. we will follow him in a brief
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exchange. several weeks in the panic silver visited the office of a bank unannounced. he went to the banker he met four years earlier and found him as before. where is your paper he barked? too late now he replied sadly. what has to be done can't beep done in a worry. if reform is to be secured it will take years of educational work to bring it about. toward the end of the year as the panic subsided walburg got the audience we wanted. financial reform was controlled by one man. nelson aldrich was a conservative, he been opposed to central bank or any sort of
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significant reform in the banking system, 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 if he should look into possibility the system needed a change. he went to wall street and found his way to ken lobe and came up with a narrow question. he wanted to ask shift how the central bank in germany issued treasury bills. he recognized an opportunity and said there was someone else in his office who was more qualified to speak on such matters and let him to paul's office. for the first time ten years after he arrived in the united states, he is face to face with someone who had influence and power in the u.s. government.
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aldrich kept the questions n narrow but he teased him into the broad reform and centralization even. aldrich, just to get out of his room and get on the way, told him he should feel free send him material for further reading. after aldrich left, shift went again, the man of caution adv e advised him he was making a great mistake writing anything further to aldrich. the very next day, he went aldrich a paper called a plan for a modified central bank. four days later he wrote to him again. the volcano was uncapped. he didn't write. congress created the ngz
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national monetary commission to study the system and possibly offer reforms. on the floor of the senate he said something that betrayed the impression he made. he said thoughtful students of economic history who are led by the experience of other commercial nations have been led to conclude we should adopt a central bank. and for political cover aldrich quickly went on to add he did not think america was ready for such a step. but he said some day it would. and that was a very significant step for a public figure to make. that summer he led a national monetary commission to europe to study the system of europe and hired a harvard professor to
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tutor them and they spent weeks in paris, berlin and london. they met with officials at bank and they were focus above all on one question. in america, banks feel the need to keep reserve money in the till unless a panic comes and they are forced to close the doors. in europe how is it different? how do the banks operate? and for the last reading there we will join aldrich and the commissioners as they make their way about europe. at each central bank, the americans were given to feel like the representatives of a primitive system. one barely above contempt. their astonishment by what they heard and the minutes were available to me. the astonishments were palpable.
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the europeans have policies that are universely accepted. they have a social harmony of pre-war europe and in the 1920s, much less the 1930s, if this happened the picture may not have had so much harmony. they questioned who held the funds? what was the requirement? their response was phrased in varying ways but proposed they didn't need the ridged regulations. the londoned bankers couldn't relate. how did the bank of england adjust to currency supply to meet the demands of commerce? it was in france where the visitors were truly humbled. in the united states the question of the relationship between cash in hand and
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liability is considered important. what he inquired was the rule in france. what portion of deposits were backed by cash reserves. the governor of the bank of frances shook his head with a weary side. i think he said you pay more attention to the quantity of the reserve than the quality. but surely france had laws and regulations and stipulations governing the population proportion? nope. for the rapid conversion in a crisis banking assets are made into ready money. the americans persisted what demanded the fluxing of the vote. and he said the inability to explain. he said it is the sun or perhaps
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the alternating season would be more correct. when the monetary commission came back they held hearing led my aldrich in new york city. warburg was invited to give a presentation. he spoke in favor of reform but he was quite discouraged now by the climate of the american public and the ability of reformers to go too fast and too qui quickly. he gave a pitch for a modest were proposal with piece meal to not alarm the public. a aldrich came over to him and said mr. warburg, i like your ideas. i have only one fault. warburg moment stunned asked for the flaw.
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he said you are too timid about it. it is hard to describe the feelings of mixed joy and nervousness. for the first time i felt confidant a central bank was within grasp of the united states. i don't want to give away too much of the story. there are many more stories of aldrich and others including an incident you may have heard about but a stranger than fiction trip to a remote island where feeling that the idea of a central bank would be so unpopular they actually cut the first draft in secret and the
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story passed the democrats shortly after that. warburg was very right to be worry of the public response. i think warburg, who by the way went on to be the fed's first governor, and he got caught up in this battle and changed the citizen ship and went on to join the federal reserve when it was formed in 1914. i think today he would feel unfortunately very much at home in the climate we have politically today. there are bills that the that would strip the fed of the their independence and subject monetary moves to the elected officials. but there is one difference i
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would i would like to point out between then and now. in 1913 and the period i wrote about there was tremendous conflicts politically, sexually and culturally. bankers didn't agree with reformers. and bankers on wall street didn't agree with people on the other side. people in the eastern sea board and the big cities in the northeast were very much at odds with people in the rural areas and the rest of the country. none the less the people that felt deeply about this issue were able to study it for a number of years. they studied it, debated it, cut through their differences and arrived at an endearing situation. when i look at the political process today i am not so sure we can do that. i want to thank you very much and happy to take questions.
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[applause] >> is it true that the federal reserve lobby is not to be audited? if so, why not? >> the federal reserve is audited. the bill that rand paul submitted call for the monetary decisions, so the basic decisions about interest rates going up and down and buying and selling bonds to receive day-to-day scrutiny by congress. in terms of what is on the books and what their assets are that is public. not only public but it is audited. audits of the fed is pretty big word that helps sell books but it is about subjecting the feds
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to the political process. >> who do you think they should raise the rates again and why? >> janet yellen is in the tough spot. the circulation is limited by the amount of gold and the circulation is limited just by whatever the seven governors and five other members of the fomc decide. obviously they would like to raise the rates, it is not a good idea for money to be free, if distorted it overly encourages people to make investments. but the economy keeps sending back the wrong signals and the rest of the world's economy is going in the other direction. the system in the 1920's when the federal reserve was very concerned about a depression in
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england and didn't want england to lose the gold so we lowered rates to help out england and that really resulted in the final stages of the stock market book in the 1920s. i think yellen has a problem because if she doesn't do it soon she will get into the election season and that will make it tough. i haven't answered your question, though. >> hi. i wanted to ask you about large banks that bar borrow overnight with the federal reserve reserve and their modern it systems. are they doing that to balance their books and have the right reserves? because it is changing every 24 hours. is that how it works? >> they are doing it because some are sort and some are long. some need more and some of it is surplus. the reserve requirements are
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necessary for a bank to lower that to feel they want to borrow more. you don't want to be down to the last dollar. particularly whether the federal fund rates are so low. it cost virtually nothing to have more cash. the biggest problems bank are facing is not lack of cash but lack of places to put it. there is an exces right now. >> do you have questions on quanatative easing or how the feds will run off all funds they have? >> the quanatative process is a relative new one.
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it holds about $4 trillion on the books. it has two choices. it could start to sell them off and just as buying bonds stimulate the economy, selling them off could have the opposite affect. or it could just wait until these bonds mature and, you know, let it run off over time. i guess is it will be some mix between the two. i would doubt they will unload $4 trillion that quick because they don't want to send the country back to reception. >> my name is john yost and where sit on the seattle housing board committee. i have a question for you. allen greenspan basically said we can print unlimited green backs because we have our own central bank and also to because we have the federal reserve
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branch. now how do we expect our economy mainstream and also, too, our wall street to exist and continue with this $17 trillion deficit? you know as we know, maybe most of you are not struggling, but if this continues, we will all struggle and there might be breadlines and things like that. >> i think you asked a couple questions. let me skr these. the debt people they can about. the federal debt is, you know, the difference between what the federal government spends and what it takes in in taxes. it is 3%. it is not a terrible thing for the government to borrow a little more than it spends each year. it borrowed a lot more during the crisis. and that was a good time to be
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stimulating and spending more and getting it out there. that is fiscal policy and what the treasury does. we are talking about monetary policy. what the federal reserve in effect prints and stimulates. you talked about two directions. one is the hardships they face. one is the lack of jobs and all of that. and the other is if the federal reserve hands out too much money the money would not be worth anything. it is not so easy to say we should print unlimited amounts. greenspan may have said that but he didn't mean it. he may have printed more than he should have. it is not an easy job. it is not the question of
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printing unlimited amounts because that will not help the people you are talking about. there was a lot of pressure on the government to make housing loans cheap and easy in the early years of the 2000s. that was a nice idea but at the end of the day loaning money to people who can not pay it back palpable as bankers that reckless were doing. loaning people hundred percent of the purchase price didn't end up helping them or helping the banks or helping anybody. we had the crisis. so these things, i think, involve a fine line and a lot of co compromise. >> i was wondering if you believe the federal reserve is instrumental in nationalizing the debt in the investment banks
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in the last housing bubble? if so and passing that debt on to us, and if so is it fair to question the constitution ality of allowing that to happen. >> the constitutionality was questioned between the supreme court in 1919 and they say it was constitutional. the actions of the federal reserve say in loaning money to aig congress answered the federal resever resistance in the 1930s loosened up the terms in which the federal reserve could lend money to mon-banks such as aig. they did that because the federal reserve effort during the recession was not effective.
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we had the unemployment go up and people thought if we were going to have a federal reserve it should be more proficient. the dodd-frank act passed after the crisis and it restricts the feds from doing that. it is not clear if we had a future crisis and there were an aig about to go down and whether the federal reserve make that loan. you don't want fire departments using too much water. but to tell them ahead of time if there is a fire it is the fault of the people who were reckless with matches and they should learn not to start the fires that is a tough process.
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you know, you have to know about this. there is a saying that there is no atheist in fox holes. it is easy to be hung on a point when you are on a nice night in seattle. but in the middle of a crisis and bank after bank is going down and there is a run on the money market and unemployment is above 10% and going who knows where and 20 million americans are up over their neck in mortgages they cannot pay back. >> the federal reserve isn't a
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public agency, though. >> it is a public agency. >> not according to the corurts. >> the federal reserve in washington is very much a public agencies. the reserve banks are under the dominion of the federal reserve and play divdeneds to the private banks. but the federal reserve is an organization and its leadership is every bit a public agency. >> it is appropriate to engage in a fundamentally political discussion. >> this is going to be it was we have getting into a debate but anything that any political body does is political. the people on the federal reserve were appointed by one
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president or another. the same way people in any agency were appointed by people at the fcc or whoever you want to name. the reason we have an agency structure is to create a level between them and the people running for office so you don't have congressmen running for office and people with cheap interest rates and money as way to get elected. in 1913, we didn't have public agencies. so the idea of subjecting a private industry to public super vision was very radical. the first draft of the federal reserve act it bankers in the federal reserve board chosen by
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bankers and william james brian who really had gotten wilson his nomination and was secretary of state because of that was very poplar among democrats said that was wrong. he said the people on it ought to be public servants and all of them should be appointed by the president and threatened to resign and that would have taken down the bill but the wilson administration because brian was poplar. wilson went to a famous advisor later, lewis brandice, and he said i am in a pickle. and he said you have in a pickle. brian is right. this is a public entity and he said you should nominate them and that is what happened. >> thank you for the time this
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evening. this is more personal than professional. but as someone who has been steeped in the federal reserve and the history current, present and 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 is on your book stand? >> if you want books on financial crashes or so on i really like the great crash. if you want a book that explains how world trade works and detentions between people who want to put up barriers and people who would like to see trade be liberalized as much as it is and more so there is a
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wonderful book by an italian economist who works in washington called the travels of a t-shirt. reads like a novel believe it or not. but those are two i really like. >> thank you so much. >> good evening. when did we come off the gold standard and what were the effects? >> so, after answering these other questions, i would love to here the difference between glass siegel and dodd-frank. >> we came off the gold standards in stages. the issue with the gold standard was that the federal reserve u.s. government was promising to back every dollar with gold. that meant it could not issue more dollars than it had gold.
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to attract gold it began to raise interest rates in the heart of depression and that had a punishing affect on the economy at the worst time. britain went through the exact same process. they won the gold standard as well. in 1931, they went off the gold standard which put pressure on us to go off it at as well. and franklin roosevelt took us partway off because he closed the gold window to citizens. so people could no longer take a gold note down and turn it in for funds. the gold system didn't operate during the depression or the world war ii but he had a half gold system in the '50s and the
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'60s and the idea was we printed whatever we wanted but the asians and europeans could come over and switch for cold. that worked until the 1960s and we had inflation. the french didn't want the dollar to be king of the hill and they began shipping us dollars and demanding gold. and nixon stunned the world one day saying the window is closed. you can use dollars or not but if you come here and say federal reserve note we will turn it in and give you the same federal reserve note right back. that is all it is worth. and secretary john connelly at that point put a nice twist on it saying the dollar is our currency and your problem.
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the expectations were that the dollar would lose credence and nobody would want it. we have been humilitated and it would be replaced by the mark, then the yen, and then the euro. this was during the ben bernanke era creating uncertainty. but the dollar maintained purchasing power and more so on world markets. really the reason the people have faith in the dollar really two reasons. it has friction power in the united states and because it is based in a country where the laws and legal systems are trusted and the transparency, for instance, some people suggested that the chinese currency will be the new reserve currency but no one knows how much chinese currency is out there and no one knows the debts
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of the banks are. they don't have that transparency. the dollars' strength rest on the strength of the american economy and system and the lack of the gold back hasn't affected that. class carter stegal separated banks from investment banks. that was eroded and done away with in the 1990s. dodd-frank doesn't really touch that. it is a series of regulations that try to restrict banks and tries to stop what happened and the mortgage crisis from happening again. dodd-frank was passed in 1910
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very recently. >> thank you very much. very insightful. a couple questions. in the 32 years following 1913, we had two world wars, we had great depression, social security drop of '35. and how do you think american history would have changed if we didn't have the federal reserve in that question? the other question is given the lessons of the 32 years across the board in terms of public policy and what happened across the globe what do you think or how do you think the act might have been amended or changed if the creators had been able to foresee all of the changes? >> i cannot look at what would happen in a hundred years without it. but one act, i think is they were so concerned with not
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offending people who didn't want a central bank and also wanting to achieve warburg's purchase that they struck it halfway by having these banks around the country and the federal reserve bank around san francisco and all 12 of them. they were vague about where the power would reside in the system and when the act was passed and became law, immediately there was a struggle between three parties. the individual federal reserve banks led by there strongest one which is the one in new york. the board in washington. and the treasury secretary who for the first couple decades had an automatic seat on the federal reserve board. it was clear as we went into the depression who was responsible for policy. some people felt that after all the federal reserve bank the
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banks were the banks around the country and the board in washington was just supervisory. others thought the board should be the engine of the decision making. and others thought the treasury. if you read the notes from that period you see some of the bank presidents were lowering rates, some were not. atlanta was dubish and they did much better than the rest of the country during the depression. but no one person, such as ben bernanke in 2008, who said we have a real problem, something has to act in a concerted way and that someone is going to be me. over time the battle kept going on as late as during the wars. the government wants cheap financing and the feds tend to go along with it during war. thit this happened after world
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war one into about 1951 the rates were very low. 2%. it became clear the feds thought it was time to let the rates go up. harry truman was just a gast. he didn't accept the feds being an agency and when he could not get his way in private he announced publically the fed agreed to keep the rates at 2% which they had not done. he fired one of the board members, appointed someone else from the treasury who he thought would be his pigeon on the federal reserve board. but then the fed insisted and they would not back down. from then on it has been a more independent agency and powers have been more based in washington. i will say that one effect of the recent crisis is the federal
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reserve worked cloche closer with the treasury. yellen and ben bernanke meet more often and they are coordinating with the government more so which might be appropriate for a crisis but i think at least until and at some point janet yellen is going to have to say she is running the feds or the feds independence will be compromised. >> do you believe the zero recognize in interest rates is leading to inflation and if so could that have negative repercussions? >> it is just hard to tell. if it is it will have negative repercussions. it is hard to sell how distorted they are. there is a lot of capital out
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there. so if you said let's have rates at a more natural level what would that be? they have to be up to 6%. there is a lot of capital and not a lot of people who want to go out and build, borrow and invest. we are not in a swift economy. it is possible. but it is really hard to know these things. to me there are not any obvious bubbles as with the real estate crisis, not that i said that was obvious then, but these things are easier to see in retrospect. there is speculation in silicone valley but not like we had in 1999. so there are probably some inflation. anyone else who hasn't asked a question? i will take one more from this
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gentlemen and then happy to sign books >> i want to follow up on something i heard you say. i thought you said since the abolition of the gold standard the dollar hasn't lost any of its buying power. >> no, i said it hasn't lost its power overseas in the world market. there was a terrible inflation in the 1970s. the rate of inflation generally has not been severe. it has lost about 2% a year except for that period. you can look at the figures like a dollar in 1920 is only worth 14 cents today. you know, that is really significant if you are around in 1920 and still around today. but life doesn't work that way. what happens is at a 2% rate it is barely noticeable and in some ways it is helpful. the one reason we have unemployment is for cultural

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