YouSaid · the spoken record

Dr. Richard Sylla

lines on the record: 62
first: 2023-04-05
most recent: 2023-04-05
sittings or episodes: 1
sources: podcast

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“A lot for the economy. It was unpopular politically though because it had a 20-year charter started in 1791. So in 1811, it's charter from Congress would expire. And by that time, the Jeffersonians were in power. Madison was actually the president. Albert Gallatin was the Secretary of the Treasury. Gallatin very much wanted a renewal of the charter because he thought Hamilton was right. The bank did a lot of service for the government. But by that time you had 100 or so state banks and they lobbied their congressmen not to renew the charter of the Bank of the United States because I've explained it was a triple win situation. If the Bank of the United States was not renewed”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“Have an ownership stake in the bank. The Bank of England was entirely privately owned. The Bank of Amsterdam was owned by the city of Amsterdam. So the government owned the Amsterdam Bank, the Bank of England was privately owned. Hamilton had a hybrid. The U.S. government took a 20% position in the bank, and private investors bought the other 80%. And his argument was that tax revenues might not be coming in as fast as the government needed to spend money, so it could take out a short-term loan from the bank in the United States. But he also felt the Bank of the United States would, well, it would be a model for the states to create banks, but it would do a private business making loans to merchants and other business people and very short-term loans usually, discounts. So it was just a plus for the economy. And the records we have of its history is that it was a very well-managed institution.”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“Buy stock in the bank. That's exactly what the Bank of England initial financing was. Hamilton introduced some innovations, however. He allowed his bank to have branches around the country. And he allowed the government not to”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“The first central bank, well, Hamilton had noticed he was a student of financial history himself, and he noticed that the Dutch had a big bank called the Bank of Amsterdam that was at the very center of Dutch finance, and he also noticed in that bank dated back to sixteen oh nine. He also noticed that in sixteen ninety four, England founded the Bank of England, and England, of course, then went on to become a stable financial country and a great power in the world. So Hamilton, being a student of history, said that especially the model of the Bank of England, which did a lot of private business, but also did a lot of government business, Hamilton thought that the United States would be a stronger country, that the federal government would be stronger and the economy would be stronger if we had a similar bank. And in some ways he took over features of the Bank of England. He allowed government debt to be used.”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“And it was the same thing that the authorities did in 2023, was done in 1792. And that, to my mind, is what's fascinating about financial history. You see the same things over and over to people living at a certain time and not used to have financial crisis. Everything seems unprecedented. Can they really do this? This is impossible. This has never been done before. If you know financial history, almost everything we do now has been done before.”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“Financial reforms came up with a brilliant idea, told the Bank of New York to tell the brokers of Not to dump their bonds on the market at fire sale prices, but bring them to the bank as collateral and Hamilton named the prices that the bank should accept them as collateral. You talked about the authorities today saying take those government bonds at par value. Well, Hamilton, the main government security was a six percent bond, and Hamilton told the Bank of New York, take it as collateral at par value and make loans on that basis. And the idea is then the brokers use the loans to pay their engagements with other brokers and their clients instead of dumping the securities on the market. Hamilton's plan was adopted and the crisis went away fairly quickly. If we're lucky this time we'll be so lucky. But that's what 230 years ago to be precise.”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“No, it's not unprecedented at all. In fact, we saw something very much akin to this at the beginning of U.S. history in what I call Wall Street's first crash in 1792. There's a large backstory to that we can get into it if you want, but the financial system was sort of brand new then. It was kind of the new thing like dot-com companies or non-fungible tokens or cryptocurrencies. The financial system itself in the United States was new. And it only took a couple of years before massive speculation took place and the value of the government that went soaring up and then some speculators failed and there was a run, not so much a run on basically people were dumping their securities on the market at fire sale prices. And Alexander Hamilton, the Secretary of the Treasury, who was responsible for the”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think it has a lot to do with it because the rising interest rates reduce the value of fixed income assets. And so in the case of the most prominent failure so far, I guess Silicon Valley Bank, they booked a big loss on their portfolio of Treasury securities that they had bought at very low interest rates. And when interest rates went up, the market value of those securities went down. And I think at the beginning of the year they had taken a $15 billion loss on their portfolio of treasury securities, but the capital of the bank was only $16 billion. So that's, in other words, the decline in the value of their Treasury securities had almost wiped out their capital. It took a couple months before the depositors of the bank to realize that that bank was skating on thin ice. But when they did, they ran on the bank and the FDI said.”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“And basically they raised 25 basis points every meeting. They started from a 1% interest rate, not quite zero. We got down to zero. But 25 basis points every meeting and that went on until we got it somewhere between 5% and 6%, five and a quarter. So every six weeks when the Fed met, they raised their benchmark rate 25 basis points. And it was like a stairway if you look at it on a chart. It's like a stairway. You're going up the stairs from 2003 to 2006 or 2004 really to 2006. And that's sort of what they're doing now, except they had some more dramatic increases of 50 basis points and a couple of 75 basis points. So they're climbing the stairs a little faster now and the stairs are a little uneven, you know, sometimes it's a short stair, 25 basis points, other times it's longer stairs, higher stairs of 50.”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“I would say that if you look back to 2003 to 2006, and that's not very long ago, that's less than two decades ago, or it has started 2003 is exactly two decades ago. And it was right about this time where I think it was in, I recall from the book that when I did the last edition of it, which was, I think, a 2005 edition, the tenure government bond, the sort of benchmark bond, its average yield during the month of May of 2003 was 3.33%. And what happened then is that there was a recovery from the dot-com bubble and the Fed was a little bit worried about inflation. And so it began a series of interest rate increases. I think it was in 2004. They started.”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“In order to encourage what turned out to be, I would say a modest recovery, not a rippery recovery, but a modest recovery. And they push interest rates very low. And now we're seeing something, you know, the impetus was an outbreak of inflation in the wake of the... Printing of money during COVID. The inflation picked up and it was more than was expected. And so the Federal Reserve now is doing what it has done in the past. It's raising interest rates to fight inflation. But I view it in longer term since I've looked at, as you mentioned, four or five thousand years of interest rates that this is really, you know, there's always some specific reason why something's going on at a particular time like now, but really it's probably more of a normalization of interest rates”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT
“I wouldn't say it was extreme at all. I mean, I think 4.75% interest on government bonds of various maturities would have been considered to be kind of normal in the 1960s, like 60 years ago, they had come up from low levels in World War II, but they got to be normal by the early to mid-1960s. And so in my view, I mean, this is part of a normalization process. We got through a period, as in World War II, where government authorities suppressed interest rates, you might say. In World War II, the reason was to keep the cost of financing the war down for the government. More recently, it was in the aftermath of the 2007-9 global financial crisis, and there was a slow recovery from that, and the monetary authorities suppressed interest rates.”
2023-04-05 · Forward Guidance · The Next Chapter In Interest Rate History | Dr. Richard Sylla · IDENTIFIED FROM THE TRANSCRIPT