100 Years of Central Banking

Crises and Consequences

"If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia."

Agenda

The origins of the Federal Reserve

De-globalization following WW I

The Crash of 1929

Regime Uncertainty

What actually ended the Great

Depression?

WW II and its aftermath: Industry

WW II and its aftermath : Money

Exorbitant Privilege

Freedom of the printing press

Henry Kissinger goes to Saudi Arabia

De-dollarization of world commerce

Global Triggers

Why You Need to Know This

Wealth Protection at a time of crisis

Discussion

The Origins of The Federal Reserve

• The Gold Standard Act of 1900 Orwellian speak – elastic MS From regional banking to national banking

• Panic of 1907 Treasury expansion from 1905-07

• Morgan, Rockfeller, Kuhn and Loeb interests• Jekyll Island Club retreat and draft of the Federal Reserve bill

Not the first time central banking has been attempted!

•First Bank of the United States (1791-1811)

•Second Bank of the United States (1816-36)

•Federal Reserve System (1913-201x?)

De-globalization following World War I

Global ProtectionismEuropean Protectionism

When goods don’t cross borders, soldiers will

The Crash of 1929

Bank of England – Federal Reserve collusion

• 1 GBP = $4.86 prior to WW I

• War financing inc. MS

• Exchange rate fell to 1 GBP = $3.50

• Returned to Gold Standard at $4.86

• Obvious effects:

o Deflation

o Loss of export competitiveness

o Growing unemployment

• Solution?

o Make the Fed inflate its MS!

The role of the Acceptance Paper market

• Bills Bought add to MS

• Bills Discounted temporarily add to MS

o Discount rate < bank lending rate

o Banks faced no penalty

o Rapid MS growth

• Also bought foreign acceptance paper

• All in the name of strengthening the banking system

Money Supply Growth under a Gold Standard

Bank Failures Hoover’s interference with the market

• Velvet glove on the iron fist• Subsidizing exports• Wreaking havoc with wheat• Foreign loans – even bad loans are good for

America• Anti-stock market• Father of the New Deal• SEC• FDIC• Reducing working hours for steel workers• Public works projects – The Hoover Dam• Inheritance taxes• Ban child labour to reduce unemployment

Regime Uncertainty Depression

Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War By Robert Higgshttp://www.independent.org/pdf/tir/tir_01_4_higgs.pdf

1920s 700 $170m

1930 1350 $837m

1931 2293 $1690m

1932 1453 $706

Federal Deposit Insurance in 1933

Slight bull phase till 1937

More on Regime Uncertainty

In a deflationary era, effective risk premia were extremely high for long-term corporate bonds. Reason: lack of business confidence.

Duration Yield Multiple

5-year bond 3x

10-year bond >4x

20-year bond 5x

30-year bond >5x

Follow The Money

63%

Any guesses on why unemployment rose?

What actually ended the Depression?

1929193019311932193319341935193619371938193919401941194219431944194519461947194819491950$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Govt

Private

FDR Big Business

No more Regime Uncertainty

Military-Industry Complex

World War II and its aftermath: Industry

“If you are going to try to go to war, or to prepare for war, in a capitalist country, you have got to let business make money out of the process or business won’t work.” – Republican Henry Stimson, 1940

“Do you think Truman will be more favorable or less favorable toward labour unions than Roosevelt was?” (May 1945 poll)

5%

55%20%

20% More Favourable

Less Favourable

The Same

No Opinion

Robert Higgs

World War II and its aftermath: Money

Other Currencies

The Gold Exchange Standard – 1926-31

Other Currencies

Bretton Woods System – 1945-71

Waiting for the Pin

Exorbitant Privilege

“Any workable and acceptable international monetary system must not bear the stamp or control of any one country in particular. Truly, it is hard to imagine any standard other than gold. Yes, gold, whose nature does not alter, which may be poured equally well into ingots, bars, or coins, which has no nationality, and which has, eternally and universally, been regarded as the unaltered currency par excellence ...“

August 15, 1971 – Nixon closes the Gold WindowThe third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.

In the past 7 years, there has been an average of one international monetary crisis every year...

I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets , except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

Now, what is this action — which is very technical — what does it mean for you?

Let me lay to rest the bugaboo of what is called devaluation.

If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

The effect of this action, in other words, will be to stabilize the dollar.

World Governments Win Freedom of The Printing Press

Now that’s what we would all call a stable dollar!

And Gold?

Why did the Dollar still retain its value?

Henry Kissinger goes to Saudi Arabia

• The rise of the petrodollar• The emergence of the era of worldwide fiat money

De-dollarization of World Commerce

• The Putin Punt• Gazprom Deal• Currency swaps• Germany as clearinghouse for RMB• Russian and Chinese Central Bank gold buying

spree• FATCA• BRICS version of IMF

Global Triggers

• Abenomics and the roads to nowhere• China’s Ghost Cities and Malls• ECB’s taxes on bank deposits, pension seizures and moves

toward capital controls• Argentina Defaults• Portugal’s largest bank files for bankruptcy• FATCA and SEC as accelerators of the dollar collapse• $9b fine on BNP• Barclays fine• JPMC fine• Accidental Americans, FBAR• T-Bond bubble

Why You Need to Know This

"If you've got young people who don't know what to do, I'd urge them not to get MBAs, but to get agriculture degrees." –Jim Rogers on CNBC.com.

There’s going to be a huge shift in American society, American culture, in the places where one is going to get rich. The stock brokers are going to be driving taxis. The smart ones will learn to drive tractors so they can work for the smart farmers. The farmers are going to be driving Lamborghinis. I’m telling you. You should start Forbes Farming.” – Jim Rogers on Forbes.com

Wealth Protection at a time of Crisis

• Will Dollars Save the World?• Geo-political diversification

• Rhodesia to Zimbabwe• Balkanization• Meltdown America by Casey Research• Porter Stansberry Research – The End of America• Doug Casey’s International Man

• Hard assets through inflation and deflation• Bitcoin – a new global currency?

E-mail: kashyap286@gmail.comLinkedIn: https://www.linkedin.com/pub/kashyap-sriram/88/51b/951