Bank panic in the past – that is, the government

We need the Federal Reserve because before we have it, the private banking system had panic all the time. Kindness kind to hear this justification for Fed without surcease. We go over this subject to our new book; Free Money: Bitcoin and American Monetary DeliveryBecause the government will not allow us not to. Federal websites this day – I will save you URL. They are in the book – we say that things like the federal banking regulation before and the posting were strengthened and stabilized the US banking system because of the economy.

In Free moneyWe tried the suggestion. We found it in every case. Here is an exemplary, to reinforce a column I wrote on this subject several months ago. There was a great bad bank panic in 1907. It was the one that resulted in the Fed. Everyone went so much beerk over this panic that the Fed came in 1913, and we have had this banking supervisor since then.

What was this panic and what caused it? In the fall of 1907, banks across the country exiled their reserves, as brokers redeemed their accounts to carry farms harvesting – an annual ritual that had continued for centuries – and by October, the banks began to pay them and the banks began to themselves out of the window. JP Morgan gave some people with some money with a profit and the whole thing went through.

What caused the panic of 1907? Because capitalism, of course. Right. Wow is misled by our historical consciousness in it. In Free moneyWe followed the crack analysis of invaluable monetary researcher Richard Timberlake (perhaps Milton Friedman’s greatest student) in his remarkable book decades ago, decades ago Monetary Policy in the United States: Spiritual and Institutional History.

Timberlake notes that at that time, large banks in the United States were “national banks”, designated by the federal government and had to bring high minimum federal bonds to their reserves. Problem: The United States was generally operating budget surpluses and otherwise shrinking the supply of federal debit media pending in relation to the size of the economy and therefore the natural size of the banking system. The United States had begun the “National Bank” system in the Civil War because the Union issued debt like crazy, no one wanted to buy it and the banks looked like a nice captive customer.

Whatever the advantages before 1865, by 1907 it was ridiculous for an economy as overly successful as that of the time had a banking system that had to have a large reserve in federal bonds. There weren’t enough of them. Wise wise in this obvious, Finance Minister Leslie Shaw continued to relax the rules, allowing national banks to degrade other useful media besides federal governments as their basic reserves.

The man knew what he was doing! There are no panic until 1906. Then, in a cloud of UNCLITY, Shaw was forced to overcome Gold-Ale-Boy George Cortelyou, a friend of President Tro’s Knickerbocker. This Mr Amsterdam was not Leslie Shaw, a humble if Canny Iowan. There have been additional requirements in the banking system due to loss of insurance companies against the San Francisco earthquake, and Cortari reinforced the requirement to rely on federal bonds. The harvest came, the banks ran short, the managers blur over the Sills, and Morgan was cleaned.

Timberlake: “Some imagination [Cortelyou’s] part may have tailored the timetable and operation of [Treasury’s] The usual household business, so that it has completed and not clash with seasonal monetary policies. “Timberlake found that in Cortelyou, having control of whether a general financial crisis is developing it was not in its taste.

We got the Fed because of this bug comedy. The whole problem was caused by the government. Design Defect #1: The National Bank system that required reserves in federal bonds was a remnant of the needs of 1862. There was no longer any need to encourage the ownership of the federal federal bonds, because the civil war had ended for two years. Design of defect #2: The country had become a ridiculous expert in the production of wealth in itself for the mass industrial revolution after 1865, which means that the basic assets should have been differentiated (as Shaw saw) as a nod to this reality. Design Defect #3: Randos at the top of the Ministry of Finance (eg George Cortelyou) could destroy the whole thing if he possesses a bad idea.

What really stopped panic, more than Morgan’s intervention, was the issue of private bank clearance banks paid to other members of the bank associations. Banks could use this scrip to regulate their debts and then could accept this scrip in good cash after the crisis was lifted. This scrip was illegal by the national banking acts of the Civil War era and should have been banned or taxed at 10 % or both, with a statute. Congress looked at the other way. The government caused the crisis and the private sector solved it – and we got the Fed!

How did the Fed manage the original crises? We ever got the worst – the great recession, while the Fed was just one teenager, including bad embarrassment. So we have the Fed, fine. The shame for this is that the exception and our only story make us get our legacy wrong. Executed the private banking system nicely Back before the Fed. We continue to need the Fed to “stabilize” our monetary system, as we need a hole in the head.