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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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“Scare a little bit today that if Kinderberger is right, okay, people have been analogizing today to the 70s, okay? And I think it's not true. You know, the international monetary system seems very stable today. It is not at all like the 1970s. So if he's right, then this is not really inflation. It's a kind of post-war price shift, price level shift, okay? And that will, because of the disordered conditions of the pandemic and also war, you know, Ukraine war and so forth. And, you know, shifting from service economy to a goods economy and then back again. So there's going to be price instability because there's plenty of reasons for that. But that doesn't need to be ongoing inflation, I think. And I think it's, it's.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Kindleburger's explanation, which was retrospective. As I say, he thought that at first that this was a repeat of 31. So he feared deflation. But the reason we got deflation after 31 was because the international monetary system collapsed. And so there was competitive devaluation and so forth. The international monetary system was in disorder, certainly in the 70s, but it didn't collapse. This is the period when the euro dollar system arose. And so we got price instability, but we got price on the upside, not on the downside. So it's really the flip side of the depression. It was monetary chaos. And this is maybe relevant for understanding, even thinking about the inflation.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Right, if I remember from your book, I think Kindleberger likened the de-linking of the US dollar from gold to the sterling's delinking in 1931. And as such, he expected deflation, not inflation, that he was quite surprised by inflation. Why was there inflation in the 1970s? And can you sort of link it to this unmooring of bank credit to gold? And then we'll get to Volcker's interest rate hikes. And I suppose I have a question, which is in the absence of a gold standard, is there a need for the central bank to impose drastic price stability with far-reaching consequences on nations, on economies, on the labor force in order to retain that exorbitant privilege. But yeah, first, how do you explain the inflation of the 1970s?”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“As in fact, there were. It wasn't global depression, but it was stagflation. It was inflation. You're like, you're a sort of young guy. You don't remember the 70s. But I do. I was in high school then. And it was not. Was not a good time to be alive at all. It takes time to create the foreign exchange markets, the forward markets, the euro dollar system, all of this stuff. These institutions have to grow. And in retrospect, so it took eight, nine, ten years. I guess that's actually not long in geological time, but it's long in the life of a teenager.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“It doesn't rust. That's why we like it. But it's not a good money. It might be a good kind of standard of value. You can promise to pay gold. That's what the dollar was until 71. But once the pressure came on to actually make those payments, We went off, and the dollar system was a shock like 1931 was a shock. In fact, Kindleberger did worry that Nixon's abdication, as he understood it in 71, was analogous to 1931 when the sterling standard collapsed. However, Montague Norman was forced off gold. And the dollar was not in 71. This was a decision, a political decision. And so that's why Kinderberger always called it the crime of 1971. It seemed that the U.S. was abdicating its responsibility and that there would be very bad consequences.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“As you're making that transition from one to the other, it's important to emphasize this, that why is it work better to have the international money, the liability of a central bank of a nation as opposed to a metal, yellow metal or something like that? And it's because the payment system is inherently a credit thing. So it's not an out money is a form of credit, the best money, because it's elastic. It's elastic outward and also inward if it's working well. So you can expand and contract both. Gold is not elastic at all. There's just a certain quantity of it. And you can mine more of it. You know, it takes a while. Once it's there, it's there forever. Really, it doesn't.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Yes, well, that would be my tradition, what you just said. Okay, that there was gold standard for sterling, okay. But really sterling was the global money. And similarly, Bretton Woods sort of tied the dollar to gold, but not everyone else was tied to the dollar. So there was never a gold standard for it was a dollar standard. We shifted from a sterling standard before World War I to a dollar standard after World War II. And in the interim, it was just a mess, mostly, 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
“U.S. goods, and the sterling was still on the gold standard. Professor, there are a lot of folks, and you know, certainly some people watching this who they may think that pretty much the entire world has always been on a gold standard up until 1971, at which time you had monstrous inflation and a whole series of bad things. To what degree is it true that there really was a gold standard that existed in other words, it wasn't just a sterling standard that the sterling was tied to gold, but every other currency was actually tied to sterling, not gold.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“It was that they had all these sterling bounces that they wanted to spend. They wanted to buy U.S. goods. And that meant gold outflow from the Bank of England. And so that's what undermined the whole thing. Wanted to spend them. They wanted to spend them for dollar goods for US goods.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Collapsed. Watch that. If the Fed runs, gets into some difficulty, see what happens. Is it getting help from other central banks? Or is it not?”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“That Sterling, when Sterling went off gold, just basically, there wasn't a facility for central bank cooperation to support Sterling. There was all of this debt overhang from the reparations and all of that. So there were so many stresses on the system. And the Bank of England was just not able to support it all. There were attempts, I tell this story. I mean, the BIS was actually created as an attempt to commercialize the reparations, as a grand bargain, but it didn't get in place in time and everything collapsed before that. And Montague Norman at the Bank of England was really key in creating that. He knew I need some help here. You know, I can't run this whole thing by myself. And so he was trying to create cooperation from other central banks. There was an attempt that didn't work. And so when that didn't work, that's when Stirling.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Yes, World War I. World War I. My book, The Name of it, my book is an homage to Marcello de Checo's. Wonderful's history of the Stirling Standard. Okay. So, which is up until World War I. And then, and everyone thought that that would just, you know, the war was a little interruption. It turned out that it was not just a little interruption. It was really the end of the Stirling system. And that in retrospect, he tells the story, had been weakening. Some of that was also about the end of formal empire too, that it turned out that the trade surplus of India was quite important in supporting the pound sterling, the world began to look for an alternative. And the dollar seemed the eligible. And so there started to move in that direction. 9031, the collapse of the stirrup was really the date.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“To an alternative. I don't see an alternative really that exists. Once you understand this to understand that being the global reserve currency comes with responsibilities. Who wants to take that responsibility? The United States didn't, okay? And it's been sort of forced to do that. So once you understand that, you're maybe a little less eager to raise your hand. You wanted to talk about the collapse of Stirling. I mean, everyone thought after World War I that we would return to the Stirling standard. Certainly the United States thought that, you know, it was just a matter of time. The Stirling standard, which had existed before World War I.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Well, it sort of looks that way. Remember that Nixon, 1971, I tell this in the book, he tried to dethrone the dollar. He didn't want the dollar to be have that responsibility. And he failed, you know, because the world wanted the dollar. And so that was the growth of the offshore dollar system. So when the world doesn't want the dollar anymore, then we won't have the dollar anymore. But I don't see any move, any substantial move to...”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Businesses. But that all changed after the global financial crisis, basically because of zero interest rate policy in the global north and therefore search for yield by northern intermediaries, pension funds and insurance companies who are saying, well, I guess we're going to have to find yield somewhere. And the global south was suddenly an acceptable borrower. And so away we went and for a decade or more that's been the story. I think that's a good thing in general for the global south. To have that expanding integration of these countries into the global system. But it's not a painless thing. And it has winners. And it has, and that's what we're seeing play out.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“That's the same thing that was happening in Europe in the 50s. So for someone who knows history, it's like, I've seen this game before. And I see that people who are being integrated into the global dollar system find that a jarring experience and they don't like it. And that's what you're hearing. It's a business thing, not a government thing and in the way that it grows around the world. It's really quite remarkable how rapidly the global south has integrated into the global dollar system. It's largely because, I mean, before the global financial crisis, you know, this was really the ability to tap global capital markets was really a sovereign ability. It was governments that were borrowing in global markets. And then on lending to their demand.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Complaint was that the US can sort of buy things in France without ever paying for them because it just gives you dollars and then the French have to hold the dollars. And so they're not paying for them with real goods or with gold, as the French wanted. And not appreciating that, you know, the French banks are holding dollars because it's the world reserve currency. And so it's useful to them that they're not being forced to do this. It's useful to them, particularly recovering economies. And this whole thing is repeated in the last decade with the Global South, right? That the Global South has been accumulating lots of dollar reserve balances, even at the same time that they've been borrowing in dollar capital markets globally.”
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 a hierarchical system, and nobody's really happy about that. And what you're hearing right now are the discontents really in the periphery mostly, the countries that you are mentioning. In the book, I tell this story about the building of the dollar system immediately after the war. It was really all about extending the dollar system to Europe and integrating the recovering economies after World War II with the United States. And there was a lot of discontents about that. The exorbitant privilege word was invented in France.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Been a lot of rumblings over the past few months about dedoization that Russia is going to de-dollarize. India is going to stop paying Russia in dollars, maybe Brazil will hold yuan-nominated assets. What is your own prognosis about The sustainability of the dollar standard, and can you put them in the context of folks, including academics, predicting the demise of the dollar standard for 60 or 70 years? And it hasn't happened yet.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Sometimes people think, oh, how could I be a reserve currency? What would I have to do? And I guess I question that premise in the beginning. It's like this has grown up organically over time. It is not that the U.S. decided to become a reserve currency. And let's put in the institutions. It more was that the dollar was chosen to be a reserve currency by market actors. And then we had to put in all of the mechanisms to support that. you know, to support that choice by the private actors, which we did, you know, and that's why it grows through crises, because it's not planned. It develops over time.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Well, exactly, it's not standard. Every Treasury bill has the same signatory. And there's a full range of maturities of them too. So you can move. And so that provides a kind of deep and liquid, and it's backstopped by the Fed, really. So the Fed is this hybrid entity that is the banker's bank. And we've been talking about the sense in which it's the banker's bank, that it is providing liquidity to the banking system. But it's also the government bank so that it is supporting the government finances. And that means ensuring the liquidity of the treasury market. That's part of it. That's one of the reasons that it works as it does. And that's not something that really there's any competitor to at the moment. But I would, you know, the way you frame that question.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Of that supports the value of the dollar. So some of that has to do with deep and liquid markets that are supported by a legal system and by a sophisticated banking system, largely in New York. Europe has nothing comparable to the market for treasury bills in the United States, for example. Each individual country has their own. But there's no euro bill like that.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Think about this in key currency kind of language, that remember that the balance of payments of an individual country is settled in some international reserve. So the question is, the surplus countries, countries where people want to buy your goods or buy your assets, have no difficulty issuing a monetary liability because people need to make payments to you. So that's the key. Now, and I have to emphasize, it's also financial payments because we know that the US is running trade deficits, has run trade deficits for a long time. That doesn't seem to get in the way, okay? And it's because the world wants to accumulate our assets as well. And so they're making payments to us. And that supports the value.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“What are the necessary characteristics of a global reserve currency? I think I've maybe already mentioned two just about the dollar that it's in global trade is invoiced in that currency. And then other countries can hold assets denominated in that currency as a foreign exchange reserve asset. What am I missing? In other words, if we were to say, oh, the euro can't become the next global reserve currency because XYZ, or it's not XYZ and the dollar is XYZ, what are an example of those?”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Or maybe we should let the BIS become the global lender of last resort and do its operations in the eurodollar market. He was trying to think about how to solve the political problem that if we could maybe locate international underlast resort in this purely technical kind of central bank, the BIS, that is not the central bank of any individual country, maybe that would depoliticize it and it would make it easier. That never came to pass. There were important swap lines run through the BIS. And now we seem to have solved the political problem, at least for the time being. So the Fed is operating in that way, did in the COVID crisis of 2020.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“But it is able to operate as international lender of last resort in that regard. This is maybe another important thing to say about this is the expansion of global credit since the global financial crisis has been largely in the global south. So that's an extra challenge. And it's also the shadow banking system. It's the market-based credit system, not bank lending. So developing mechanisms to backstop that expansion of the global dollar system has been a challenge as well. And it's being tested right now, as a matter of fact. You may remember in the book, I say that Charlie Kindleberger was very concerned about how are we going to work this out. The Fed is never going to want to be the International Lender of Last Resort. Maybe we should have European membership on the FOMC.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“But the financial shock was probably not evident except to people who were really in the financial markets. In the global financial crisis, very different. It took years that the Fed was always asking, is it unusual in exigent circumstances yet? Can we do something? And so they intervened sort of as the wheels were falling off the cart. And so things got a lot worse. So they've learned the lesson and the Fed is, in fact, operating as international lender of last resort, but really in cooperation with other central banks. That's how the politics got worked out, really, so that the Fed is not lending to foreign banks. It's lending to foreign central banks. And it will not lend to foreign banks. And that seems okay politically. That's okay. The US is okay with that. Foreign countries are okay with that.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Political system is national, and so whether the Fed can be the international lender of last resort is kind of in question. Is the US willing to let it do that? Is really the problem? And if not, then no one else really can do that. So then you don't have an international lender of last resort. And so the crisis will play out. In fact, you could compare what happened in the global financial crisis with what happened in the COVID crisis of March 2020. Many of your listeners will say what COVID crisis? Well, why? It's because the Fed quite immediately stepped in as international lender of last resort. It reopened the swap lines. And so nobody noticed. The wheels did not come off the financial cart. There were lots of other problems.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Well, that's just the feature of all banking systems. It has nothing particular to do with the fact that it's global. That's true domestically as well. I come from a tradition of monetary thought where we speak of the inherent instability of credit. This is from Ralph Hautri. things come unglued and people want to there's a flight to liquidity to dollars that's when the lender of last resort can prevent the system from unraveling because it can create The means of payment. And so it can satisfy that need in a time of crisis. That's true of all banking systems. And as I say, the offshore, the euro dollar system is a banking system. So the difficulty of providing lender of last resort is really largely political because the”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“And you say, Oh, I guess that really wasn't as stable as I thought it was. And you fix that thing. And then the next time it breaks somewhere else. And so, yes, that's right, that it is in fact a banking system. So it has that feature, I always say in my classes, the essential all banking is a swap of IOUs. And so you put your finger exactly on it that yes, there is that elasticity of being able to create money by expanding the balance sheet on both sides, but there's then discipline because the question is whether the world wants to hold those data balances or in liquid form, okay, or do they want to hold them in treasuries? Do they want to hold them in mortgage-backed securities? What do they want to hold them in? And so you keep moving back and forth, elasticity and discipline, disciplining by the holders of money.”
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. What I call in my class is the alchemy of banking, expanding the balance sheet on both sides. Yes, that's correct. There is a difference in the sense that the foreign banks don't have direct access to the Fed. So they have to worry about, well, what if somebody wants to move that deposit to some other bank or withdraw it or something? So the offshore dollar system has developed mechanisms for that. And it also has mechanisms for tying into the onshore dollar system too in times of stress. So that took, that's why it took so long to develop all of these institutional structures. And you don't know what institutional structures you're going to need until you start building. And then it breaks here.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Yes, that's very important. I should have said that. You caught the idea that the dollar system is largely an offshore system. And it's not just an offshore system. It's largely a private dollar system that the liabilities, the dollar liabilities that are clearing international transactions are the liabilities of global banks, not the liabilities of the U.S. central bank. And so it's a private system and it is an offshore system. So it's not really a government thing. It's a business thing.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Global financial crisis. This wasn't This is the wrong frame. We need to understand international money. We need to understand the international role of money in order to understand this. And it's taken me 10 years to, or really 12, I suppose, since to get there. I'm glad it's out.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“Character is also organic, and it grows through crisis. Maybe that's another thing to mention. So we're currently in a period of tightening. And so U.S. monetary policy is global monetary policy for better or for worse. And that's putting strains on the system. And we're finding out where it's going to break. And that's the time we're living in right now after a period of a decade of incredible ease. My previous book, The New Lombard Street, treated the dollar system. It was really very domestic, you know, and it was really about the Fed. And so I realized as soon as I finished it, it ends with the global financial crisis of 2008 and 2009. That was what inspired the publisher to ask me to write it. And I realized, so you were asking where this book came from in the first place. One reason was I was disappointed by the 2011 book. I realized, you know, this was a...”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“So the important thing to understand is that international money is the dollar pretty much, exclusively. And all other currencies are sort of tied into the dollar through a set of effect swaps and international lender blast resort. We can get into that as much detail as you want. It's a hierarchical system in that regard. It seems that the hierarchical character of it pleases no one that the people who are not in dollar countries are unhappy about dollar hegemony, as they call it. And the US is not happy that it has responsibility for the global dollar system. So it arose, I suppose it's important to appreciate that it seems to have arisen organically. It was not created by a treaty or anything like that.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT
“I was actually trying to understand international finance. I was trying to extend the money view tradition to international money. And so I initially was trying to write a biography of the global dollar. And then I found Kindleberger and he was a perfect kind of foil for this story. But I wanted to learn about how international money works.”
2023-05-01 · Forward Guidance · Dr. Perry Mehrling on The Dollar Standard, Globalization of Shadow Banking, and Charles Kindleberger · IDENTIFIED FROM THE TRANSCRIPT