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The first bank of the United States, chartered in 1791 with a 20-year charter, aimed to stabilize the new federal government's finances after the Revolutionary War. As part of Alexander Hamilton's plan, the bank helped refinance revolutionary war debt, making it long-term and providing customs revenue to bolster the government's credibility and fiscal stability.
During the 18th century, specie, primarily silver coins like the Spanish piece of eight, held significant value and stability as money. The US government borrowed in specie equivalents like sterling, francs, and guilders to maintain credibility with creditors like Amsterdam. The reliance on specie enhanced the nation's borrowing reputation and ensured repayment to foreign creditors.
The second bank of the United States, established in 1816, facilitated economic growth through trade finance and was pivotal in managing western expansion post the War of 1812. While criticized for profit-making practices, the bank played a significant role until its closure in 1836, impacting the subsequent financial panics and the free banking era that ensued.
The podcast delves into the historical evolution of the banking system in the United States, highlighting key transitions from the national banking period to the establishment of the Federal Reserve. It discusses the role of national banks backed by the US government, the distinction between assets and deposits, and the development of financial stability measures like double liability for bank shareholders.
The podcast explores how significant global events, like World War I, shaped the monetary systems and policies, particularly focusing on the shift away from the gold standard and the emergence of the US dollar as a global reserve currency. It touches on the challenges faced during the Great Depression, the role of the Federal Reserve in responding to economic crises, and the implications of international monetary collaboration for financial stability.
Jane Knodell, professor of economics at the University of Vermont and author of "The Second Bank of the United States: Central banker in an era of nation-building" joins the show for a masterclass in financial history. Taking us back to the founding of the First & Second Bank of the United States, Knodell discusses the origins of banking, central banking and everything in between, taking us on a tour from the late 1700's to present day. To hear all this and more, you'll have to tune in!
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Timestamps:
(00:00) Introduction
(01:02) The First Bank In The United States
(04:29) The Coinage Act Of 1790
(08:37) The Financing Of The Revolutionary War
(14:40) How Successful Was The First Bank?
(17:14) The Second Bank of the United States: “Central” Banker in an Era of Nation-Building
(24:50) The Mechanics of "Discounts, Exchange & Treasury Debt"
(29:05) The Panic Of 1819
(33:02) The Panic of 1825 & The Role Of "Central" Banking
(40:12) Did The Second Bank of the United States Closing In 1836 Have Any Effect On The Panic Of 1837?
(46:29) The Panic Of 1907: The J.P. Morgan Bailouts
(53:55) The Financial System's Plumbing
(57:54) The Financing of WWI
(01:02:34) The Great Depression
(01:07:47) Can The Federal Reserve Print Money?
(01:11:13) Bretton Woods
(01:15:35) The Treasury-Fed Accord
(01:19:15) The FTX Fallout
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
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