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Perry Mehrling

lines on the record: 86
first: 2023-05-01
most recent: 2023-05-01
sittings or episodes: 1
sources: podcast

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“Excavation of an alternative monetary theory. Those are all three things in that 200 some pages. But you can read it in any of those three ways. They're intertwined.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“It's pretty dense, but it's a pretty dense book. But it's a story, too. So I always tell, you know, my student, just read it. You don't have to, you know, it has a certain narrative arc to it. You can read this at different levels. You can read it quickly as a biography. Okay. You can read it very slowly as a critique of modern economics. Or you can read it in a middle level that it's kind of an alternative view of what happened in the international monetary system over his lifetime. And it's an alternative to what you will have learned in your classes, which puts Bretton Woods at the center and doesn't mention anything about the tripartite agreement in 1936. So it's a different set of pivotal dates. And so it is a revisionist history of international money as well as a biography, as well as”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“And should be more widely discussed and considered. And I think it's largely unknown. World of Depression is his first sort of big history book. And Mania's panacean crashes. That's coming out in its eighth edition right now with a new co-author, Bob Macaulay, who was a student of Kindleberger's, as a matter of fact. So that's another, and then his great, great treatises, the International Money Essays and the Financial History of Western Europe. So that was the beginning of his third career writing that book. And a lot of his thinking, once he was out of academia, he was forced to retire in 1976. He had complete freedom. And so he took advantage of that freedom. Will provide an easy entry point. It's not a long book.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Is worth thinking about okay that it gets some things right about the forces that are driving the long-term development of the global international monetary system and is therefore I think worth having an economist toolbox that a theory that is prescient you know it sees the future as I say Charlie saw we need to get capital markets extended to the global south well it took 50 years it's precipit and in retrospect correct that in fact all of these crises when the dollar was counted out or the attempt of Nixon to kill the dollar system the attempts of others to create substitutes for it the dollar system just takes those blows and then it consolidates and it comes back so in retrospect it seems that this way of thinking about about international money has a lot going for it”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Yes, yes, yes, yes. He was vice president at the New York Fed when Charlie was in graduate school in 1931. And when Charlie went to work there too in 1937, so it's a tradition of it is kind of the money view that we've been talking about, which I developed for sort of the United States and dollar money markets extended to the international scheme. So that's the main idea, okay, is that this key currency view, which has been a minority view basically forever,”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so I have given talks all about this. He is a representative of this key currency tradition of thinking, of international monetary system that was also John H. Williams and others.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“The book is Money and Empire. Charles Kennerberger and the dollar system. I read the book. It was fantastic. So to all the listeners reading out, you definitely want to check this out. A great mix of some biographical information as well as the ideas, which we're talking primarily. My final question for you, Professor, is what would you say The reason that you wrote this book, Kindleberger's Intellectual Achievements that you think are not covered within his legacy? What do you feel like about Kindleberger's legacy is missing?”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Friends, the key institution at Bretton Woods was not the IMF. The key institution was the World Bank because it was lending for development. And the BIS already existed. So the BIS, which was dealing with interbank balances, central bank balances. So the BIS stabilized the European currencies. They weren't convertible until 1958. But the way it stabilized them was precisely by moving money from the deficits to the surpluses on the balance sheet of the BIS and acting as a kind of central bank for the central banks of the different European countries. It's interesting that you should ask how ever would a fixed exchange rate system work? Because your experience has been entirely in your life with flexible exchange rates.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“And a very important thing for Kindleberg was there are some countries who should be running deficits all the time. So developing countries that are borrowing for capital development or something like that, we don't want to think about that as a deficit that needs to be solved with short-term bank flows because they're not going to pay it back in the short run. They can't pay it. It's not for that. It's for capital development. So that should be funded by access to global capital markets. So 10-year bonds, 20-year bonds, that's what Kinderberger would be so thrilled, okay, that the last 10 years have meant access to global capital markets by the global south. That's what he wanted to happen 50 years before. It just took a long, long, long, long time. It was always for him and his.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, sure. More than I earned. Now, the US has. That's why I said fundamental imbalance. If, in fact, you've been running, if you're running fundamental imbalance, then the exchange rate is wrong. And that can be because the different inflation rates in the different countries or so forth. So I'm just saying that the logic of clearing is that deficit agents temporarily borrow from surplus agents. And then later on, it'll go the other way.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Through interbank borrowing between countries, global borrowing, to absorb temporary deficits and surpluses. So the global banking system is the key backstop for a stable exchange rate system in this sense, that countries that are running deficits can borrow from countries that are running surpluses. But it's not the sovereigns that are borrowing and lending, it's their banking systems, so that it operates as a business thing, not as a government thing.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Not clear that this exercise was happening while the war was still going on. So Kindleberger was not there, couldn't have been there. He was fighting the war in Europe. So the importance of Bretton Woods has this political importance that we are now going to continue to work together in peace, economic cooperation after we win the war. That's what they are agreeing at Bretton Woods. And all of that then gets reified in the textbooks like, oh, that's when we created the post-war system and so forth. Remember that Bretton Woods allowed there to be exchange rate movements for fundamental imbalance. So leave that aside. You asked how do fixed exchange rates work. They work.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Oh, the musical quality was the notion that somehow Bretton Woods created the global dollar system as an act of benign multilateralism. That's the myth. The truth, the empirical truth, is that the global dollar system grew organically and was being blessed at Bretton Woods, was being politically blessed multilaterally. So that U.S. would be the leader.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so fixed exchange rates, he was an advocate of that, advocate of staying on it longer than the world did. I never really understood how that worked. What was the mechanism of adjusting the balance of payments? And I think a lot of that was agreed upon at Bretton Woods sort of a lot of people in macroeconomics and the academic pressure pay a lot of attention to Bretton Woods and sort of worship it to some degree in the book. And I don't know if it was you calling it this, you the author or Kindleburg calling this or for someone else, the Bretton Woods is having a certain mythic quality. What was the mythical nature of Bretton Woods?”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Price of currencies, and Charlie was against that because he thinks this is a we don't want to have every United States, every state having its own currency and then fluctuating against each other. There's an advantage to having the dollar system in the United States, having it unified. His teacher at Columbia was part of creating the Fed. And so he saw that and he just played that same logic works globally too, that a global trading system requires a global currency or fixed exchange rates are sort of like that that's sort of a global currency. We don't have fixed exchange rates now, but we have foreign exchange swaps and so forth that are holding all the currencies together, not one for one. It's not fixed, but they limit the fluctuations. That proved to be the solution, at least. Now, the institutional solution.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Was a Cassandra, you know, so he was not listened to really in his own time. Maybe now is his time. Maybe people will look back and say, you know, that guy had more had more. I've been giving talks like that. I gave one to economic historians at records just last week. And they were saying, you know, I knew him and I never understood what he, but, you know, he seems like maybe he was actually right now that I think back, you know, so it's, so part of me is translating for a modern audience so that people can understand. And then they can decide what they want to do with their teaching of driven dilemma in their classes. And similarly, flexible exchange rates, you know, that chapter 8 chapter seven is about that, about Harry Johnson. And a lot of the economists thought, oh, we should just abandon fixed exchange rates. We should let prices fluctuate just as we let price of potatoes fluctuate.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Truth by votes. Okay. And so that's one of my goals in this book a little bit is to provide enough context for how Kindleberger thought about the world so that you could really appreciate what his alternative view was. I think he was not understood largely because he didn't write in math and statistics and so forth. And so it seemed like he was an old-fashioned economist who really didn't understand modern economics or something. That's not really, I think that's not really right. Okay. He had another way of doing economics that led him to see different things in the world, which happened in retrospect to be prescient and correct.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“New York as the new London. But so that's how the dollar system expanded, frankly, by the US refusing. So the Triffin dilemma. Know, there's a lot of things like this that teachers that students are really fascinated by and they like it. And so things like the money multiplier too, you know, we still teach it. That are not actually very helpful for understanding how money works. And once they're in the textbooks, it's very hard to get them out of the textbooks. That's a problem. It's my problem. I teach money in banking. That's the nature of the beast. And I can't fight that. So I would just say that the fact that the majority of economists adopt one way of thinking doesn't mean that they're right. It just, it may well be that the minority view is actually right. And is worth considering as a possibility.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Economic policy as a national thing. They're trying to think about advising governments about monetary policy and fiscal policy and so forth. And kindergarten is always thinking globally. He's thinking about the dollar system, not about what's best for the United States, but about the dollar system. And so making the dollar system work was what he was trying to do in 1966 instead of trying to kill it. The US government kept being worried, you know, so they drove a lot of this business out of New York offshore back to London, which London was perfectly happy to have because they knew how to do global banking. They had done it for a long time, you know, so that the knowledge of how to do global banking was there. And so the Eurodollar system grew up because the US rejected having”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“It's also not true that somehow when this dollar line crosses the gold line, banking is not that the dollars are somehow in the place of the gold. A fraction reserve banking is the nature of the game. The dollar holdings of the rest of the world are increasing because the rest of the world is growing and they need more dollar reserves. And so they will be increasing every year, you know. And there's no, that's not right to think of that as a deficit. That's selling liquidity services to the rest of the world. So this was Kindleberger's view and the fundamental difference between Triffin and Kindleberger is that, and in fact, between the economics profession and Kindleberger, is that the economics profession is generally thinking about”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“And the European accumulation was going up and up and up, and the US dollar holdings was going down and down and down, and they crossed, okay, those two lines crossed. And so he was pointing out that there isn't enough gold in Fort Knox if there's a run on the dollar. So this is the moment in which the dollar is now we need to find an alternative. So, Kindleburger basically disagreed with almost all of that, you know, that certainly you do not need to run a trade deficit in order to supply the rest of the world with liquid balances, because you could just do a swap of IRUs with them. And in fact, the New York was, right? We were lending to Europe in dollars long term by buying bonds, and they were lending to us by having deposited.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“So, this is his attempt to make that argument. He says that in order for a national currency to be an international currency, the U.S. would have to run trade deficits. And in order to get those dollars, so it has to pay for goods with dollars, not with goods, if the rest of the world needs to accumulate dollars. This is a dilemma because by running a trade deficit, the US is actually becoming a weaker economy. And so eventually there's going to be a run on the dollar. And so the dollar becomes weak. He pointed out that his big famous graph in that book showing the European accumulation of dollar balances in the United States against the US holdings of gold.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Well, I tell this story in chapter six. So Triffin was a professor at Yale, and he wrote a book called Golden the Dollar Crisis that captured the imagination of President Kennedy. And therefore the economics profession that was advising President Kennedy, I think that's sort of where it came from. Triffin was basically a complete contemporary of Kindleberger. Although he was a Belgian by birth. And I mentioned that because that may be part of his sense that he didn't like the dollar system. He thought that it was somehow that it Bretton Woods, the IMF had been set up to be a sort of transnational global central bank and that somehow the US went back on its treaty obligations. And so the trend”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Percent off by using code Guidance 10. Thanks, let's get back to the interview. Professor, there is a phrase that I've encountered before, an idea called Triffin's Dilemma, and it sounds very intelligent and sophisticated. Reading your book, you and a particular Kindleberger had a somewhat critical view of Triffin's dilemma. And given that I just read your book, so I'm seeing it through your eyes and I guess Kindleberger's eyes, it does make sense, a theory that hasn't really worked out for 70 years maybe should be a little bit challenged. What is the Triffin dilemma, the dollar glut, and how did it differ from Kindleberger's version of the dollar shortage? And yeah, the track record for the past 70 years, sort of who's won that argument.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“May be because they have lots of cash reserves, and those cash reserves may have come from some of the pandemic features that there are large cash reserves around so that businesses that are really unprofitable are running on fumes can still survive. And I don't know so much the situation in the periphery. But as you say, all these interest rates are moving together and there will be washout in other places. And that creates then political pressure for stopping. But the system as a whole, okay, it is what I think I'm watching. Because if the system is a whole or if the core of the system breaks... Then we have global financial crisis. But I don't see that. So I think that most of the stresses are manageable. Will be manageable in the next year or two.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Is 4%, 5%? Is it enough? I doubt that we're going to have to go to 20% like Volcker, because things had gotten way out of hand, you know, by 1979. And I think a lot of Powell's he remembers that. You look at his gray hairs and you say, yeah, he remembers that. That we don't want to let it to get to the point where to put the wheels back on the cart takes that much that was devastating blow for many years. It was basically two or three years of intense, intense pain. And so I don't think that we're going to need to do that. And maybe they've done enough. Maybe they haven't done enough. It does not look to me like the ZERP businesses have capitulated yet. Okay.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Not direct. Okay. And in the money view, we understand the rate of interest as really being about the price of rolling over your debt, debts that are coming due. So it's the survival constraint. And what higher interest rates do higher overnight interest rates do, is to really give a big incentive for people to settle, okay, instead of rolling over a zero interest rate policy, it costs you nothing to roll over. And so nobody settles. And when they don't settle, that means there's no discipline and you never know if this business is a viable business or not a viable business. So now we're finding out. But we've only been at this a year, Jack. You know, so it's going to take a while. We will know three years from now whether it worked or not.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“I don't know what's in Jay Powell's head. I know what he says publicly, but that's not necessarily what he actually thinks. The central bankers are in this communications business. Interest rates are a lot higher now than people are used to for the last 10 years. And they moved very rapidly. That's true too. So that's a big shock. You quite correctly point out that the link between that sort of action and the price level, you know,”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Let's say if an emerging market country has a debt problem and the Federal Reserve prints a lot of money and does a lot of a swap line, that can be very effective. But it's my understanding that for price level inflation, it's the Federal Reserve's ability to control is much, much lower. What is the evidence to, you know, does interest rates at 4% as opposed to zero? How effective is that at sort of taming inflation of those four prices of money, the one that Jay Powell is concerned about right now the most, is the price level inflation? And, you know, he does that because he says that very publicly. Do you think that is correct? And might there be a point where, you know, to fight inflation interest rates need to go to 7%, but they simply can't for some reason not. Oh, the government will pay too much on its debt or there'll be more bank issues.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Much of a trade off. You're saying there's a trade off, you know, it's more what is the right policy for the moment. And switching from elasticity to discipline. Correct moment. The system tends, I return to this, the system tends to fluctuate. The inherent instability of credit. And so you want to just sort of put bounds on that and try to prevent it from going off the rails too far. And that's what central bankers do and to be a lender of Latisord in these times of crisis. And we will learn some lessons as we look back about the relationship between the fiscal authority and the monetary authority as well. There was a big fiscal element to in every country, but different countries did it differently. And so to learn from that, well, what things worked better and what things worked worse, there's going to be lots of books written about this and we will learn from it. But we learned a lot from the global financial crisis, which is”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Don't have gold anymore, okay? So, this price level thing that you're talking about is sort of like that in a certain way we have during the stress of COVID, the central banks have abandoned par. And now they're trying to return, not to the pre-crisis price level, but to a new stable price level. So that would be like a new gold valuation. But it's not gold. It's the whole commodity basket. That is the par relationship there, if you think of it that way. And I think that's what's happening. I think that's what's happening, that we're during a crisis, you open the floodgates, you keep the system going, and then you mop up afterwards. And that's what we're doing. In that sense, it's not.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“The United States tried to defend PAR, and as a consequence, our banking system collapsed in 1933, and we had Roosevelt. So I think abandoning for her central bank to abandon the gold par under pressure is the right thing to do. and then try to return to it.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Well, what you said about PART isn't exactly right. You were saying that's about one bank account being traded one for one with another bank account. The idea is rather that bank accounts, liabilities of the private dollar system traded par with liabilities of the public banking system, meaning the Fed, meaning reserves, meaning cash. That's the par relationship there, not between banks, but between layers of the hierarchy, but between banks and central banks. And the This question of trade off, I mean, is important, that it is in what the Bank of England did in 1931, was to abandon PAR, right? It went par with gold. And because it couldn't hold it anymore, that's at a higher level, you know, that's the central bank against gold, not the banking system against the central bank.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“I want to ask you about your money view, your theory of finance capitalism, liquidity, as well as the four prices of money, which you have written about. There is par, in other words, $10 at Bank A is worth the same as a bank deposit, $10 at bank B. There is interest rates. Oh, you get 2% on this. You get 5% on this. There is exchange. Oh, there's $10, there's $10 yuan, $10, and then there's the price level inflation. So what do you see as the role of the Federal Reserve? I guess on those different prices of money, and what if they come into conflict? For example, what if the only way to guarantee par is to have a moderate amount of inflation? How do you sort of think about that? That trade off.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Two world wars and a Great Depression. So be careful what you wish for. I do not wish for 30 years two world wars and a Great Depression. This dollar system, you know, it's not perfect, but it seems to be holding together. Let's make it work. Let's make it work. And let's make it work for everybody, you know, not just the core, but the periphery too. That would be my direction here”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Will hold. And I'm not worried about it. You said there's this spectrum of people who hate the dollar and wish it would go away and people who love the dollar and say it will be with us till eternity. I'm kind of in neither group because I'm saying this is an organic system that grows. And possibly one day there will be something that replaces it. But I will tell you that moving from the sterling system to the dollar system, I will remind you, okay, it took from 1914 to 1944. So 30 years”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Particularly is very slow moving, it mostly is about reproducing knowledge of the past rather than creating new knowledge. So that makes it inherently conservative and that's a good thing. I mean, that's why we have libraries. We keep all the knowledge from the past. But in times of rapid change, that means you fall behind. But the practitioners and central bankers have not fallen behind. They're paying attention to how the world works. And I think they mostly understand it. I'm not worried that the wheels are going to fall off the cart anytime soon. Because, again, a key currency view says as long as the center holds, the system will hold. And I think the center will hold. The periphery is another matter. There have been extensions of the system in directions that will that are in retrospect will prove ill-advised.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“To try to hold the system together in 2008 and 2009. I don't think we're near anything like that today. I think we understand much more how the brave new world of shadow banking works, okay? And also how its globalization and an extension to the global south, how that works. I think this is probably not common knowledge in the sense that maybe the number of people who understand how this works is maybe 10% of the population or maybe less than that. But they're the people who need to know it. It hasn't reached the general public, I think at all. And it hasn't really changed the way economics is taught in universities yet. There's always a lag like this. All of this stuff has happened in only 10 years, Jack. And academia.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Deposits instead of asset back commercial paper or repo. There were initial attempts and that didn't wind up working. And so ultimately the government got involved and the liquidity swap lines were lending money to European central banks to lend on to these commercial banks so that they would not liquidate their holding of mortgage-backed securities until we could sort all this out on our side of the pond. And then we did sort it all out. And a lot of those mortgage-backed securities wound up on the balance sheet of the Fed, or rather they were refinanced and was the refinancing that liquidated the mortgage-banked securities and then the new mortgages wound up on the balance sheet of the Fed. So that stabilized the mortgage market. So we've seen a big, big crisis in a lot of innovation.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Directly or indirectly, I mean, central banks are holding short term dollar assets. We're wondering if the money market funds are in danger. You were talking about 2005 and 2006. So yes, so what happened when the money market funds refused to roll, basically, the asset-backed commercial paper, this caused a funding crisis for the European banks that were holding residential mortgage-backed securities, okay? So they had to find some other way of funding this. And the money market mutual funds had to find some other asset to replace it with. And so some of that was moving things onto the balance sheet of city bank, for example. And so Citibank issuing commercial paper, okay, or the European banks issuing”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Make the distinction between prime funds and government only funds. And I suppose an important distinction there too is the new regulation that only government funds can promise par. So that the liabilities of those funds are close substitutes for bank deposits. Whereas prime, not so much. And that caused a big shift of corporate funds from into government only because they are not interested in having a nonpar instrument. It's not just money market mutual funds that are the funding enterprises. I mean, anyone who's holding a short-term”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Back to the interview. Right. And coming on to the money view, it strikes me that in the shadow banking world and those specifically money market funds in 2005, six and seven and eight, which owned assets that were locked up with toxic assets that maybe they were solvent, maybe they weren't, but highly illiquid asset-backed commercial paper. And if there had to be a fire sale in order to liquidate because everyone could withdraw their liabilities at once on the liability side, on the asset side, everything can't be sold at once. And this is a crisis, a problem that banks have faced forever. Do you think that money market funds now are in a better way because they mostly own government paper or they have accounts with the Federal Reserve at the reverse repo sort of is that mostly due to regulation or is it maybe not true?”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“The funding, it's all offshore. It's offshore on the margin, but it's not in one institution. You could have part of the term funding here and then overnight funding over there. So it helps analytically to trace this. That's our definition of that. I haven't actually, I suppose in the book, because I'm following Kindleberger and the shadow banking doesn't really show up much in this book, but maybe it should. So if you look at New Lombard Street and Money and Empire together, I think together they will basically New Lombard Street is about shadow banking and money in empire is about the global dollar system. But they are pair. They support one another, both of those things. Both of those books together.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Unregulated, or banking I don't like, or things that should be illegal. And that didn't seem useful analytically. And so things were being lumped together that were not like each other at all, okay? And so to try to understand this phenomenon, you have to ask yourself, what is an analytical distinction? And so that's what it was. Whereas normal, you know, when you think of a bank, you're thinking, oh, they're a deposit-taking institution that makes loans. And here we're saying, no, money market funding of capital market lending, no matter which balance sheet it shows up in. So it could be on a bank, you know, and in fact it was on the balance sheet of UBS, for example, in the global financial crisis. It was offshore in these sieves, these city bank sieves, when you see money market.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Well, we were trying to, we developed a definition in that paper that you're referring to that for us, the essential analytical contribution was to say money market funding of capital market lending. And why is that important? Because on both sides there, you're talking about prices that are determined in dealer markets. And so looking at money market conditions and looking at capital market conditions, and I would add now, which we didn't really say in that paper, understanding that both money markets and capital markets are global markets, right? There's one capital market, not a bunch of national ones. There's one money market, not a bunch of national ones. And so that is, that's why that form of banking kind of works. That at the time, the word shadow banking was coined, many people used it to mean sort of”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“ZERP, of course, is a zero interest rate policy. And I can't help but think, Professor, when the US has a zero interest rate policy, it allows Europe to have a zero interest rate policy. And Japan interest rates have been very low for a long time. But suddenly Brazil can have interest rates at 6%. But oh, if the Federal Reserve raises to 4% in less than a year, suddenly India has to raise rates. Brazil has to raise rates. So it's always sort of follow the leader. And I'm not familiar with the figures from those times of Volcker, as you say, pretty young. But I imagine when the yen devalued against the dollar that it was because Paul Volcker raised interest rates to 16, 17, 18%. And as such, you have money flowing in to chase those high returns, what's called hot money, which and Kindleberger write a lot.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“And also the market based credit system, that this is the natural form of banking for a global economy that bonds travel better than loans and, to put it sort of simply. And so that also will be consolidated. That expansion of the shadow banking system that broke in the global financial crisis was really just a US thing, you know, residential mortgage-backed securities and booked offshore in Europe to a great extent. But now it's global. So that's been a big change in the last 10 years. Globalization of shadow banking and the extension of the dollar system to the global south.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“In the global dollar system. And so there are businesses everywhere in the world. And they're all going to be shrinking or going out of business and releasing resources for other kinds of businesses. That's what happens in a recession. So that's what's happening now. It will be difficult in particular areas where we find out that was a Zerk business. I didn't realize it at the time, but in fact it was. But there will be, you know, there were good things that happened too. And I think this growth, this opening of global capital markets to the global south is, I think, permanent. It will survive the contraction that's happening now. Maybe not in every country in every way, but the general idea that we've expanded, we've integrated these economies into the global system, I think that will be a keeper.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Optimism seems like the system is pretty is holding together at the core, that's not at all to underestimate the difficulties that are in the periphery. And the difficulties for the businesses that grew up during ZERP, ZERP businesses is no longer profitable if you depended on ZERP, you're not profitable anymore. And I think we are not returning to ZERP. I think this is a pivot moment.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“I would bet that it won't. Okay, that it's not. And that we're coming to the end of it, of this period of adjustment of relative pressure. What parts of those credit expansion that we did during zero interest rate policy were a good idea and what parts were not a good idea. And there's going to be a consolidation of that. And then two or three years from now, we will be in a position. I mean, you mentioned Volcker. So 79, this was a very painful period. And I graduated college class of 81. So this was my time when I was becoming an economist, really thinking about that. And that was a pretty traumatic experience. When the dollar moves against the Deutschmark and the Yen by 50%, it was a time of great instability compared to present time seemed like nothing. So probably that shapes my”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT