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Dr. Jane Knodell

lines on the record: 84
first: 2023-05-15
most recent: 2023-05-15
sittings or episodes: 1
sources: podcast

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“Well, in part because of that, but the treasury said if your bank fails, And you're holding that bank's notes. If you come to the US Treasury, we're going to give you. Gold equal to the value of your notes. Now the U.S. government had collateral of the US government debt that it could sell to help pay for this guarantee. The banknote that bank deposits of the national banks, nationally chartered banks, were not guaranteed. Okay, so that's why you had runs, why people wanted to, you know, because the currency was completely safe because it had this treasury guarantee. That said, during these Crises of”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, and there were banks were issuing currency, but there was all liabilities of individual banks. National banknotes. Now the national banknotes were, in fact, fully guaranteed by the US government.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So the real economy, oh, I'm being paid, oh, I need to buy bread. There just was a shortage of actual money, which throughout history a problem because there never was enough gold. And in the 18, starting from the greenback era, money, what were greenbacks, it was no longer banks issuing their own currency or issuing their own paper. And sometimes there just wasn't enough dollars. There was a dollar shortage.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“I don't think you can even find this phrase lender of last resort in the Federal Reserve Act Or anything like it, you know, in terms of the contemporary. What they were supposed to do, and they did do this, they were supposed to solve the problem of shortages of currency. Seem to be endemic before the Fed and all those crises of the late 19th century, early 20th century. There were shortages of currency to pay wages, to Know, for farmers, to buy the stuff that they needed to plant crops and all that stuff. And that was shut down parts of the really economy. And that was linked to the restrictions on the growth of national banknotes.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“I haven't done a lot of work on the 1920s economy But I think that It makes sense to me that if you are a member of the Fed, you're a bank that's a member of the Fed, and you know that you have access to the discount window, and as long as you have the right collateral, you're going to be able to get through a short-term liquidity problem. It makes sense to me that that's supportive of lending, you know. Because if you have to stay totally liquid all the time, The only way you do that is by holding only short term paper. Okay, but the thing is, the real economy needs longer-term loans to support longer-term kinds of investments that drive productivity growth. Know we don't want a banking system that a banking system that's just obsessed with always being as liquid as it can in my mind is not optimal.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Do you think that the proliferation of commercial activity of bank loaning in the 1920s was aided by the 1917 Federal Reserve amendments because it just made banks more willing to make loans? And then also we can get into the Federal Reserve's made these technical amendments in 1917, but it continued to not see itself as the lender of last resort, as I think is the mainstream view now, which I think you think is wrong.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Leave in gold. Sorry. Yeah. And that was the France was, you know, a big part of that. That run in the dollar. So, you know, in terms of was it really a sterling standard, I guess I would say it was until World War I. Read some research, it's pretty convincing that in the 20s all of the central currency was shared by the dollar and the sterling. Then in World War then during the Great Depression it kind of shifted back to Stirling, but then obviously after World War II with Bretton Woods and the real weakening of Great Britain as a result of, you know, Two wars, the Great Depression, Sterling just, you know, it wasn't going to be Stirling anymore. It was going to be the dollar.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“That maybe one of his big advisors, Jack Ruf, R-U-E-F, came up with, that they resented the fact that the U.S. had that exorbitant privilege. And they tried to basically weaken the dollar, weaken the United States by itself holding a lot of gold. So when there were, essentially there was a run on the dollar that led to the U.S. leaving the dollar once and for all in the 70s, right?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Actually, I'm not sure we know that. I mean, we know something about like during the Great Depression when there was foreign holders of dollar assets wanted to convert to gold. They would come in and they would a lot of them had deposits at the Fed, including foreign central banks. Switzerland, France, France especially. France has always been a problem for the United States In terms of the gold standard. Well, because they're the ones, I mean, you've heard this expression exorbitant privilege. The United States has as the issuer the global reserve currency. So that was a phrase that de Gaulle came up with.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“And so did the monetary system between 1917 and let's say 1929, you know, popping of the great stock market bubble, what did that system look like? You'll commonly refer to as the roaring 20s seen in general as an era where the gold standard was followed. I recently interviewed a monetary professor, Perry Merling, who's he's of the view, a school I'm sure you're familiar with, that the gold standard really was a sterling standard. All currencies were convertible into the pound sterling and the pound sterling itself was convertible into gold. How accurate in your view, in your own work, how frequently was the dollar converted into gold? No one disputes the fact that it could be, but how frequently was it actually?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Gold doesn't pay any interest, right? Reserves at the Fed don't pay any interest. So if they were to hold their, they have required reserves. So if they were going to hold them all as reserves at the Fed and also keep holding all the gold they used to hold, they're tying up, what, between 35, 35% of their assets in a non-interest-bearing form. So they're gonna like, okay, we're taking our gold to the Fed. We're gonna deposit our gold in the Fed and we're gonna get reserve balances at the Fed in our reserve account.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So, to sort of graduate and come into one's own as a monetary authority, you have to have a lot of gold. If there's no gold in your vaults, why should anyone treat your liabilities as real money? And okay, so how did the 1917 amendments cause gold to flood into the vaults of the Federal Reserve?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“The US dollar being on the gold standard. And we had all the fights over silver versus gold at the end of the 19th century. Gold won. And the kind of predominant view at Washington, DC and also in the centers of finance domestically was that it was essential to stay on gold, you know, because the U.S., to be really respected in the community of nations, you know, had to stay on gold. And Strong believed that too. And all these early leaders of the Fed were 100% into the gold standard, right? And so having a big stock of gold in the Fed, in Fed vaults is a big part of like elevating the US internationally and establishing the absolute dominance of the Fed, the Fed's money domestically.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so another part of the story that I'm telling there is that the Treasury is kind of a And it tries to Carry out like monetary stabilization, especially in the panic of 1907, they tried to help, but they were very limited in their ability because of this requirement to keep the greenbacks convertible into gold. So there's only so much they could do without undermining the”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“No, the greenbacks were IOUs of the US government And they were an important part of the monetary base. So in the paper that we're discussing, there's a lot of data on the size and composition of the monetary base. So that's a concept that you have the money supply, which is the currency in the bank deposits that people use to buy stuff, pay show stuff. Then all that money supply is based on a foundation or a base of The best money in the economy. Whatever that may be. So before the Fed, it was gold, silver, and greenbacks. Again, greenbacks were ILUs of the federal government. And the government, those were payable on demand in gold. You could go to a treasury office or sub treasury office with your greenbacks and get gold at the fixed price then of twenty dollars sixty seven cents per Troy ounce.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Basically, what we can now consider money. Is the Federal Reserve notes, and those only became issued after the Federal Reserve. So the greenback, we say, oh, the dollar started in the 1860s, but the greenback was not for the Federal Reserve notes that now is within wallets all around the country.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“And its notes kind of are on an equal par with gold versus like being the number one form of money in the economy. Once they own all the gold, then there's less gold circulating. It's an important part of the U.S. moving off of the gold standard is that people didn't. They didn't have these gold certificates. So the Fed had to establish its money as being, you know, just as good as the gold you used to use. But here's these notes instead.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Well, they were able to issue the volume of notes they were able to issue was much greater after they owned all this gold because they were still having to back the notes with gold so that they had a gold reserve ratio requirement, right? So that's one. And you needed a Lundervlast resort or a bank that's helping the government finance a massive increase in the size of the federal government needs to be able to expand a lot in a short period of time. So it helps them do that. The other thing is that if that hadn't happened and the banks were also having to hold gold, okay, the Fed is then competing with its member banks for the gold stock.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“And just to put a point on it, so from your paper in the conclusion, it says for Benjamin Strong and Paul Warburg, the key to the Federal Reserve System's future was to own and control as much of the national gold stock as possible. So the Federal Reserve in its early years did not control the gold stock, and that was a problem. Why was that a problem? What challenges were the Federal Reserve and Fed activists who wanted the Fed to play an active role finding and encountering when they, what do they want to do that they weren't able under the original Federal Reserve Act?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Board of Governors of the Federal Reserve System down in DC. So they're writing to each other and they don't agree on everything, but they do agree that we need some major amendments to the Federal Reserve Act. And they don't get any traction until the US enters the war. Because what becomes clear is that, you know, on balance, Congress really didn't want to create a strong central bank. We still were very worried about having that much power concentrated in this institution. But that became all those concerns became secondary when it was like, we got to go win this war.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“At Federal Reserve Banks, so you can hold the gold, but that's not going to count towards your required reserves. So what happens after that is gold becomes concentrated in the ownership of the Fed, which was really necessary for it to kind of play the role it did in helping finance the war and then in becoming a bank with an ability to really run monetary policy. And the thing that I found was kind of interesting was I looked a lot at the correspondence among Early leaders of the Fed. Benjamin Strong, who was the president of the New York Fed, and Paul Warburg, who was on the inaugural”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“And the way they set up the Fed and the rules around Federal Reserve's ability to issue additional Federal Reserve notes. Was very, it really constrained the Fed to playing a very passive role in the banking system. And that's why I say that they didn't really become a central bank that could become the powerful institution that it is today without these key amendments in 1917, one of which after the U.S. entered the war, one of which said banks have to hold member banks must hold all of their reserves.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so the I had always thought that from the very beginning, like from the 1913 Act, that we moved from a world in which the banks held gold as their reserves, to a world in which they held. Federal Reserve Money, whether that's balances at a Federal Reserve Bank or Federal Reserve Notes, right? But as I started to learn about the period, I realized that that was not the case at all, in fact. In fact, under the Federal Reserve Act, what they did was they said that banks would be required to continue to hold gold in their vault because we were on the gold standard, right? They would continue to hold gold, and the big change was instead of holding correspondent balances, that is, deposits with another bank, another private bank, commercial bank, and calling those reserves, that those would become reserves at a Federal Reserve Bank. Okay, so it's like getting halfway there, but they would still be holding a lot of gold.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yes. Well, Professor, you got a new paper out called Making a Central Bank Out of the Federal Reserve, a historical perspective on wartime amendments to the Federal Reserve Act. And Professor, that's a really interesting title off the bat because sort of your previous book, The Second Bank of the United States, quotes central banker in an era of nation building. It has the quote central in quotes. So the second bank, not so much a second, not so much a central bank. But the Federal Reserve, we think of as a central bank. Oh, the US central bank started in 1913.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Probably, yeah. And there, like it was the thrift institutions that were really more in trouble. And with the commercial banks, with the commercial banks, actually, a lot of those failures were due to overextension in real estate lending. Banks in like energy states and energy prices were very volatile, agricultural prices very volatile. So we had more regional banking that can be unstable because its underlying economy is unstable. But these three, you know, more recent failures is the first time the Fed, the FDIC, and the Treasury have had to leap into action since 2008, 2009. And I think that they learned a lot during the global financial crisis that they brought to bear in these three cases. But it's kind of the revenge of the uninsured depositors is the story with these three banks.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“The losses of the assets of banks in the 1930s sounds like that was on the credit side. Would you have to go to the 1980s, 1990s to sort of find banks that failed because of interest rate risks on the asset side?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right, and because it issues the ultimate form of money in the economy, which is the reserves, their liabilities, you know, we don't worry about them being illiquid.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“And that was the lesson learned in the Great Depression when the Fed was not an effective lender of last resort. Like no one is claiming that they were. Because they weren't, banks were selling their assets, government securities and other kinds of loans and non-renewing loans in order to raise liquidity to meet deposit withdrawals. And because of that, asset prices fell dramatically so that even banks that weren't having a run on them now had a solvency problem. Because of all, you know, and there's no one to buy because everyone's trying to get liquid. So that's the case for a central bank, that it is the bank that's going to become less liquid when all the other banks are trying to become more liquid.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Half of them were kind of really liquidity problems. Half of them were solvency problems. Now what's universally understood is that a liquidity crisis can easily turn into a solvency crisis. And that's the whole rationale for having a central bank.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Oh, I don't think anyone's really taken that on, that question on. But for example, in the 1930s, there's a very nice paper that was done to try to identify whether the banks were failing because of asset quality problems. That is, it was the banks were insolvent, right? Or it was more of a liquidity problem. So a liquidity problem is like a smaller concern than an asset quality problem. Liquidity problem, you know, is a case where the Fed, a central bank, is supposed to come in, provide Get the bank over the liquidity crisis. With the understanding that because they're fundamentally solvent, you're not like bailing out a bank that really needs to be closed, right? And so what this person found is Richardson was the author, is that it was kind of like, well, about half and half, you know.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So, when banks fail, on the liability side, very often it's the case of a bank run, people withdrawing their money, either bank run or a bank walk. The story is the same. But on the asset side, as you say, there's credit risk. People aren't getting paid back or interest rate risk. You are getting paid back, but the money is just not worth it what it used to be because now interest rates are higher. You could get a higher rate of return. When banks have failed historically, you know, painting with a broad brush, how often on the asset side, is it because of credit losses or because of interest rate risks?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“and the longer term assets that they're holding, right? And that was a problem that came up in the banking crisis of the 80s and 90s. And so what's interesting, I think first, that comes to mind is these banks, and they were not alone. There are lots of banks that did the same thing, got very used to a low and stable interest rate environment. And they just kind of assumed that that was the way things were going to be. And so they didn't, you know, they didn't plan for the Fed to increase interest rates dramatically. I think they bought this idea that everybody had that we're now in this nirvana of low inflation and ample supply. And of course, the pandemic kind of put an end to all that.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Of course, we're all hoping that things will calm down. And there's some signs that it is calming down. But I guess what struck me, say, with Silicon Valley Bank is that their problem was not credit risk. In other words, loans that weren't getting repaid. Their problem was the long-term government securities that they had on their balance sheet that because of the rapid increase in the interest rates over the past year to the Fed's anti-inflation policy, the value, market value of those securities has gone down significantly. And so this is a problem of that their balance sheet had a mismatch between the deposits that are payable under”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Since we last spoke, the US banking system has encountered some stresses. Some people are calling it turmoil. Other people are calling it crisis. The bank failures Silicon Valley Bank, signature bank, and the attendant news around it. When you look back, what are sort of the historical analogs that stand out? And is this kind of par for the course of, oh, yeah, this is exactly like the same thing that happened in 1890, whatever? Or is there something really new that stands out to you?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT