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Jane Knodell

lines on the record: 112
first: 2023-01-02
most recent: 2023-01-02
sittings or episodes: 1
sources: podcast

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“Okay, so the second bank in the United States wound down. You had an era of free banking for almost a century. In the 1860s during the Civil War, you had the introduction of the greenback, sort of a common currency. But after the Civil War during the Gilded Age, it was an era of free banking where anyone could pretty much start a bank, you'd have a state bank charter. Banks failed all the time. There was contagion. If the bank of Jack Farley lent to the Bank of Professor Jane Nodell and I defaulted, my default would cause your default, which would mess with all of your deposits. So very, you know, so there would be depression, there'd be recessions that would last many, many years.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So once the second bank closes, they just get withdrawn. You know, the notes get paid back into the bank and they're going to stop issuing new notes. So that doesn't leave anybody hanging out with notes they can't do anything with. And then there's these drafts which are you know I'm in Cincinnati I need to go pay for my imports from New York City I'm gonna write I'm gonna buy a draft on this New York branch of the second bank because then when I go to New York that's gonna be accepted anywhere at full face value So again those drafts are going to be retired and I don't think there's there was any loss to creditors of the bank From the bank winding down. I don't know what happened to them. They get repaid something if you don't want to reinvest. You get the value of your.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“I'm not aware of any problem with the second bank. I mean, a lot of the liability side of the second bank's balance sheet, right? You have these notes that are circulating. They're $5. Those are big notes for the time.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“But it starts winding down much earlier. As once the federal government removes its deposits. You know, it kind of starts to wind down earlier. And is it a gentle”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So, what happened to the state banknotes as the second bank of the United States is kind of like a walking zombie. Everyone knows it's going to die. And actually once it does die, are those redeemed at par sort of what's the aftermath?”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Vacuum in banking services So it was just a perfect and the states are seeing it as oh we're going to charter these banks and they're going to lend us money and we can all grow really fast.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“With Biddle, you know, and Biddle was, you know, If I were present, I'd probably be fed up with Biddle too. I mean, you know, Biddle really sees himself as the equal of Andy Jackson. But anyway, so the deposits get moved out and there is a real rapid growth in the state banking system. New equities coming into banks, and there's probably an overbanking, you know, kind of a financial excess financial expand what can I say a lot of new banks get formed and they are not, and a lot of them end up failing, you know, by 1842. And the second bank, if the second bank had remained, it would have been harder for those banks to enter. But the closure of all these branches, especially in the West, the closure of the Second Bank branches.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Because it was a bad ending to Biddle's career. Let's just put it that way. And of course, there's whether, you know, did the removal of the second bank cause a panic of 1837 and the subsequent financial recession of 1839 to 42, which I think was actually more serious. There was a deeper contraction in the real economy in that period. And I've argued that if not the cause of it, it exacerbated it. You know, it's not you have to do this counterfactual. I mean, if the second bank had still been there, would it have happened? These are really hard questions to answer, but I do think that I've argued in my nineteen ninety eight paper in the Journal of Economic History that the removal of the deposits would start in eighteen thirty four. Jackson says we're moving the federal government's deposits out of the second bank. We're just fed up with.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So in terms of how was the bank unwound and what was the effect on shareholders, that's a great question. I actually don't know if anyone's actually looked at that. But I suspect that some of those shareholders rolled over their stock into the stock of the bank of the United States of Pennsylvania because Biddle stays in the banking business. He sets up a state chartered bank and under Pennsylvania law Things do not go well for that bank, and I think those shareholders probably lost everything.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right. I think in learning about the second bank, if students read about it at all, unless it's in a monetary history class, it's that Andrew Jackson waged a war against the second bank. Your work focuses much more, as we said, on the plumbing and the finances, which is what I'm primarily interested in. So we're kind of setting aside this whole Andrew Jackson thing. But the second bank was not renewed in 1836. What happened to the capital? Did all the shareholders get 100 cents on the dollar? Did they get more? Because the book value was higher. The actual assets was higher than the book value. Or do they not get everything where shareholders satisfied? And then second bank in the United States ends in 1836. There's a giant financial recession called the Panic of 1837 just one year later. Is it an accident?”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“But as long as they didn't really compromise on their lending standards for the bills of exchange, it probably didn't create a lot of unnecessary risk. And so increasing leverage is just a good way. It's a way that many banks over the years have increased their return on equity, even without increasing interest rates, increasing the cost of loans to borrowers just by loading more assets on your capital base.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So they got more levered by really growing that domestic bill of exchange business that we were talking about earlier. You know, as more people are like moving west, right? The Western states are expanding. Population's growing. Native populations are getting pushed out, pushed into marginal positions so that the settlers could establish farms. The demand for this trade finance is growing, and the second bank is accommodating it. So it increased the risk of the bank in the sense that the bank has more capital. has less capital behind every dollar of assets”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right, right. So a critique of the second bank is that it made too much money at the expense of the state banks. How much merit is in that claim? And then I know you found that it's return on assets was not spectacular. However, its return on equity was very high and got even higher because the bank became more levered. Actually, let me find it in your piece. Sorry. You wrote that basically at the beginning for every dollar of bank equity, they had like a dollar and a half in assets. By the end, it was more like $3 for every dollar in equity. So yeah, how did the Bank of US get more second bank of the US get more levered? And did that propose a risk?”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“That was a good investment, and it was steady. It didn't go up and down, you know, with yet a good year it went up and we had a bad year went down. So there was that, you know, you could kind of count on it.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right, exactly. They paid a dividend, which was, I think, lowered under the second president, but a lot of stockholders emailed Nicholas Biddle saying 6%, come on, come on, Nick. You can do better than that. He peaked at like 7.5% or maybe 8%. Of the dividends. And that's a pretty healthy profit 8% dividend when inflation is essentially at zero. Not too bad.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Because you're going to get repaid. They just can't pay you today. And Biddle is lecturing them. He's saying, no, no, this is not what we do. We want the state banks to themselves carry enough liquidity. that they can get through a panic without coming to us.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. It's supposed to inject the liquidity, right? And so the second bank could have expanded its own borrowing, right? But it doesn't really do that because it's kind of hunkering down, right? It's like, no, no, you're the guy who's supposed to not hunker down. But that was not the philosophy. The philosophy that Biddle had, and as you know from the book, I found these. Letters I use a lot of the letters that Biddles write into the cashiers of the different branches'cause the branch of Savannah had actually done some lender of last resort stuff with local banks, which was probably smart. I mean, as long as the bank is solvent. As long as the borrower is solvent, then you'll be okay.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I mean, what a central bank is supposed to do is become less liquid when the banking system needs liquidity, you know, and they're all, you know, the private banks are all trying to get more liquid, but they're all fighting over the same constant stock of cash.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“That's good. So no, you caught the really important quotation marks in the title, which is meant to convey the fact that I don't think it really was a central bank. It certainly stabilized the monetary system. But if you think a key characteristic of a central bank is that it is a lender of last resort, it doesn't seem to me that it was. And that panic of eighteen twenty five to twenty six is a good example of why The second bank didn't really step in to help banks that were in trouble. They actually profited from the rising value of the species that they held. So they had, at the end of that year, that very bad year for many people, the second bank is kind of saying we had a really good year. We made a lot of profit on our”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, don't withdraw liquidity from these markets because these state banks are kind of doomed and kind of let them fail. Yeah, in what way is that very different from the Federal Reserve, which is a lender of last resort? So I knew I threw a lot at you.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right. And you found that paying in gold, if you want to ship gold around, it can cost something like 4% of the value of the gold. So shipping gold is really a kind of a non-starter. All right, Professor, now I want to go into why the central word central is in quotation marks in your book about the second bank. People say, oh, Federal Reserve is a central bank. The second bank and the first bank of US, the first bank of the US, they were central banks too. But what is the key difference between them? And I might ask you about the panic of 1826, where there was kind of a bubble in state banknotes and a lot of loans and the treasury had printed a lot of money in 1824. And I think there are letters from, you know, it's on record of Nicholas Biddle saying,”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yes, a collaterized buy, you know, a shipments of goods. And so you'd include the bill of lading. So you had that value behind it, if you will. So the second bank would buy those bills of exchange. And then they would collect on them so that I, the pork packer in Cincinnati, can get my money today. I don't have to wait for six months until my stuff gets sold. So that created a lot of liquidity in Western markets. And it improved the marketing. So the whole The whole And it was a lot cheaper to move goods around with bills of exchange and drafts on the second bank. Then with If you pay with species you have to Send it down the Mississippi River. That's perilous and you ship it all the way around to the east coast. You're paying for freight, you're paying for insurance. Some of the work I've done was like the insurance was a lot.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so it's, I have some packed pork in Cincinnati. And I'm going to draw a bill of exchange on a business in Philadelphia. And there I'm going to ship my pork to them and they're going to sell my pork. But I need some way of financing the movement of this pork over to Philadelphia. So I'm going to draw a bill on the guy in Philadelphia. And I have an arrangement with him where they're going to accept that bill when it's presented to them for payment. So it's like a promise to pay. Some point in the future, after the port gets there, at some different location.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yes, was 1819, so the panic in 1819. And there some of the western branches of the second bank had lent on collateral of real estate. That was turned out to be land whose value that lost a lot of value after the panic of 1819. And the Fed foreclosed, I mean the Fed, the second bank foreclosed on these borrowers. So there was a lot of bad blood in the Western states because the second bank had foreclosed on them. That's what lenders do. You know, when you are in default of your loan, but it didn't create a lot of good feeling in the West. Now that changed a lot over time. By the time, and I'm not trying to like skip over, but by the time the Second Bank's charter, again, a 20-year charter is up for renewal. It has a lot of support in the western states, and that's because the bank's exchange business, that second.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. So I actually don't know a lot about those cases, but I know that the presidents before Biddle were not successful. And there was something that went on with Jones who had been Secretary of the Navy. But it is true that many banks in this period, not just the second bank, lent money to people. People used the loans to buy stock in the bank. So that wasn't just the second bank. It was not a good practice. Reminds me a little bit of FTX. Yeah, but those early presents were not successful. And I'm not sure it did, as you say, I mean, any bank has exposure to insider fraud. And that's why we've developed all these internal controls over the years. It'd be interesting to know whether that was less of a problem under Biddle. I just don't know. I mean, Biddle, though, Biddle had his hand on everything that was going on.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Extremely corrupt. I know there are a lot of theories about, oh, can you believe the Fed did this? Can you believe the Federal Reserve did that? But let's just go whatever's going on today with the Federal Reserve, the Federal Reserve is not lending money to individual investors so that they can buy shares in the Federal Reserve. That is not happening, but it did happen with the Second Bank of the United States in the first years, like 1817, 1818, 1819.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“And later on, the second bank of the United States may have done a good job about that under President Nicholas Biddle, the third president. But early on, it definitely had some problems. Tell us about that and particularly the corruption of branch officers lending money to, I think, his last name was Jones or lending money to themselves, to friends, as well as lending money so that they could buy more of the bank stock to the stock of the second bank in the United States could go up. And again, like the first bank in the United States, the second bank of the United States was privately owned, majority privately owned by individuals. And I mean, that seems...”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“No, the second bank is not going to lend you unless you are an important business person with a very solid reputation. So all the local, the boards of these different branches were monitoring and screening borrowers. And, you know, when I've talked about the second bank in some conferences, people are like, second bank, you know, we don't like the second bank because they just lent to wealthy people. And in a way, that's right. In a way that's right. But there but the second banks were Know it's number one job was to kind of improve the monetary system. So that meant, you know, being a bit conservative with your lending probably, you know.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right. Except it seems like a lot more risky. I mean, if These are basically IOUs that individuals as well as companies are paying. I mean, it seems like if I go to Georgia and I buy something as a New Yorker, why can't I just write something on a piece of paper and I'm in New York and I never pay them back. I mean, it seems like very possible, very easy to do fraud, especially when there's no airplanes or, you know.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so discounts are basically commercial paper, right? So business loans, right? And it's called a discount because if I give you borrowing $10,000, that paper would be bought at a discount from face value and then according to how the interest rate. And then when the bill matures, the debtor pays the full face value. Kind of like a treasury bill.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“And so roughly three categories that you characterize in your article of what the second bank of the United States owns. Number one, discounts. Number two, exchange. And number three, Treasury debt. So I only understand what one of those things is. Treasury debt is US government debt. What is discount and what is exchange?”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So the banknote market, I think the second bank kind of stayed out of the banknote market, honestly. So we had these brokers that bought and sold banknotes.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so just a quick again, we see the theme of transformation of debt to equity, private investors could pay for the new bank stock of the Second Bank of the United States. 75% of that they could pay with existing debt that they owe to the US government, which would be bought at a premium. So again, it's that the sovereign debtor is being bailed again by this central bank entity. But this time also we have a financial stability angle in addition to a sort of debt monetization angle, which is that you have these different state banknotes and they really have different levels of solvency, different levels of convertibility. Yeah, so what exactly when we say that the second bank of the United States provided liquidity in quotes to the banknote market, what exactly does that mean?”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Exactly, because that's risk. You're asking me to trust this bank. I don't know this bank. And so they were not interested in that. I mean, they obviously had inner bank relationships, but it was with banks they trusted, they had a history of good business, you know, good conduct, timely payments, and they weren't interested in moving beyond that. Is So as the second bank comes in, and so the second bank A is the only It has branches which And it's going to be a player because it's also the US government's fiscal agent. So the taxes are flowing through that bank and all the government spending is flowing through that bank. And that puts the bank in a position of being regularly exchanging notes with banks wherever it is. It's not everywhere, but it's in a lot of places. Was it, I'm forgetting now the number of branches. It's in the”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“You have unequal taxations. He was really concerned about that. So apparently the debate was very quick. I think that it didn't take much to get majorities behind the idea of a bank would be, you know, we need another bank in order to bring this monetary, to bring greater order to the monetary system. And in my book, I talk about the fact that I guess it was a Treasury Secretary Dallas, they first tried to accomplish their goals by working with the state banks, the big state banks in the different states, and they would float proposals and, you know, they couldn't get any traction because in order for that to work, the state banks had to all agree to accept each other's money. At full face value.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Really operate the federal government as an economic entity. And he's pointing out if you're collecting taxes at face value in these state banknotes and in Boston, that banknote is fully equivalent to species. But in Ohio and in South Carolina it's not. Then you are not equally taxing your people.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Of the federal government has expanded significantly because as a result of the war of 1812, they pick up some western land, a lot of this western land. So that means you have to start installing federal government services out there, many of which are managing the Native American population. But it's also roads, you know, doing all that kind of stuff that the government does, the land, managing the sale of the public lands, all that. So the Treasury Secretary Albert Gallatin, who I think is a major important figure should be studied more. He's kind of a Republican. And they're typically more concerned about concentration of state power, right? But he's kind of like understanding what's needed to really”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“The plumbing, the payment system, I mean the payment system is a basic infrastructure and you got to get that right. And if you don't get it right, you're going to have crises, recurrent crises, you're going to have loss of well-being, loss of output, all the rest of it. So the payment system was not in good shape coming out of the war of eighteen twelve, as you noticed. And there was just this, what I emphasize is the nation building part. So the other thing that happens is the territory under the control”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Which are incredibly important. You know, I just kind of felt like I'm going to think about the economic economics of the Second Bank in a way.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So it was these ideological, political, philosophical motivations that led to the First Bank of the United States not being recharted in 1811. Literally one year later, there was the War of 1812. Wars are very expensive, and there's suddenly an immense amount of debt that's issued again. And I'm just reading from one of your articles about how By 1814, I mean, I think literally the British burned down much of DC. Most state banks had suspended gold and silver payments, species payments. Banknotes traded at heavy discounts, and the treasury was forced to accept state banknotes for taxes and duties and stuff like that at face value. So anytime they collected taxes, they were losing lots of money. Once again, visits the U.S. government. And as a result, there was the Bank of the United States.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“We had we, whoever we are, right, had fought this war against an empire. And so in many people's minds, the federal government was kind of like the recreation of that kind of power, you know, and we don't want that. You know, we want power to be dispersed. We want local control.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“He may argue that in seventeen ninety one there weren't any other state banks. By eighteen eleven there's a lot of banks around. So if you're going to use the necessary clause of the Constitution to justify it, maybe you could do that in 1791. You can't do it in 1811. So I think by 1811 they're feeling like we're good, we don't really need this bank anymore The reasons why we needed in 1791 are not there anymore. Let's, you know, we think we can manage without it. I think that's essentially. Because we're so concerned about this whether or not we've overstepped. Because remember, the states have the power in this period of time. Federal government is not very big.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Now, I mean, I haven't really studied the congressional debates very closely, but there is a new book by Eric Lamazoff that I was recently told about called Reconstructing the National Bank Controversy Politics and Law and the Early American Republic. And so anyone who wants to look into that, that's also University of Chicago. He, you know, because there's all these debates, there's this Then there's another debate in eighteen eleven where we are now about whether the first bank should be rechartered. There it went down essentially on, you know, was it this debate about constitutionality? And Lamazov really kind of gets into this a lot. And it was, it went down.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“How successful was the first bank in accomplishing its goals and why was it not rechartered in, let's see, it started in 1791, so its recharted came up in 1811. It wasn't rechartered. Why was that the case? And then we'll go to the war of 1812 and then our favorite topic, of course.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right, right. Never deliver, or the console of Great Britain. It's paying coupons because you're delivering your interest. regular way, and that's an important part of, I think, the building the market because people, entities holding it wanted that income, wanted the return.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So, what that does is it takes a chunk of debt off of the market, right? And it helps build improves the value of the remaining debt because now it's more credible for the federal government to say, we're good, we can service this debt. We've got enough revenue to meet our regular interest payments in species. Now I'm thinking that this debt might have also been like consuls like with actually not just long term just kind of permanent But I'm not positive about that.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right, exactly, exactly, very good. And so now the new banks, there's like just a handful of them when the first bank is created. I think there's one in Boston. There's one in New York. There's one in Philadelphia. That's it. And they're all maintaining species. And then but the first bank is also offering an attractive deal to people who hold debt of the US government, which is their saying You can convert your debt to stock equity. In the first bank of the United States, and we're going to buy your debt at a price well above the market price. And they did the same thing with the second bank in the United States.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right, right, right. So the first bank was the fiscal agent of the U.S. government, right? So the U.S. government needed somebody to be, you know, that it would, some entity that it would use to buy goods and services and collect taxes. So as I said before, the customs revenues were very important revenue source. So the first bank was Of attack in a way, you know, a tax collector, or that was where payments were made into the first bank. And the first bank was keeping its money on a par with species. So it's that converted ability of Dollar claims into species that the first bank is maintaining”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so after the Revolutionary War, you have all these debts to US citizens, to creditors abroad, to soldiers who were paid in basically made up money, IOUs, and I think there was a few rebellions about soldiers not getting paid. So there needed something to be done. What was it about the first bank of the United States that solved these problems? And yet, let's just highlight how the first bank was not created for price stability, or maybe it was, but they did not even care about the unemployment rate or things that we considered today. It was a transformation of debt into equity, which is another parallel with the second bank, right?”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“I wouldn't call it hyperinflation, but certainly, you know, it was much at a much prices were rising a much higher rate than we're experiencing now, even though people feel like it's a high rate and very, very, we have a lot of price stability compared to what was going on then, right? Because, you know, what's going on in a war is you have less output, including agricultural output, right, which is the main thing you need to feed the soldiers. And you have this government trying to bid up the price of all this stuff just to get their hands on it, right? A feet towards the end of the war the government was actually just seizing people's goods and services Impressing it. Okay. So luckily that didn't go on for very long because, you know, that's Very hard thing for a government to do and still have the support of its people.”
2023-01-02 · Forward Guidance · A Masterclass In Central Banking | Professor Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT