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Discussion Paper
Crisis Chronicles: Gold, Deflation, and the Panic of 1893

In the late 1800s, a surge in silver production made a shift toward a monetary standard based on gold and silver rather than gold alone increasingly attractive to debtors seeking relief through higher prices. The U.S. government made a tentative step in this direction with the Sherman Silver Purchase Act, an 1890 law requiring the Treasury to significantly increase its purchases of silver. Concern about the United States abandoning the gold standard, however, drove up the demand for gold, which drained the Treasury’s holdings and created strains on the financial system’s liquidity. News ...
Liberty Street Economics , Paper 20160513

Discussion Paper
Beyond 30: Long-Term Treasury Bond Issuance from 1953 to 1957

Ever since “regular and predictable” issuance of coupon-bearing Treasury debt became the norm in the 1970s, thirty years has marked the outer boundary of Treasury bond maturities. However, longer-term bonds were not unknown in earlier years. Seven such bonds, including one 40-year bond, were issued between 1955 and 1963. The common thread that binds the seven bonds together was the interest of Treasury debt managers in lengthening the maturity structure of the debt. This post describes the efforts to lengthen debt maturities between 1953 and 1957. A subsequent post will examine the period ...
Liberty Street Economics , Paper 20170206

Discussion Paper
Crisis Chronicles: The British Export Bubble of 1810 and Pegged versus Floating Exchange Rates

In the early 1800s, Napoleon’s plan to defeat Britain was to destroy its ability to trade. The plan, however, was initially foiled. After Britain helped the Portuguese government flee Napoleon in 1807, the Portuguese returned the favor by opening Brazil to British exports—a move that caused trade to boom. In addition, Britain was able to circumvent Napoleon’s continental blockade by means of a North Sea route through the Baltics, which provided continental Europe with a conduit for commodities from the Americas. But when Britain’s trade via the North Sea was interrupted in 1810, the ...
Liberty Street Economics , Paper 20140905

Discussion Paper
The Final Crisis Chronicle: The Panic of 1907 and the Birth of the Fed

The panic of 1907 was among the most severe we’ve covered in our series and also the most transformative, as it led to the creation of the Federal Reserve System. Also known as the “Knickerbocker Crisis,” the panic of 1907 shares features with the 2007-08 crisis, including “shadow banks” in the form high-flying, less-regulated trusts operating beyond the safety net of the time, and a pivotal “Lehman moment” when Knickerbocker Trust, the second-largest trust in the country, was allowed to fail after J.P. Morgan refused to save it.
Liberty Street Economics , Paper 20161118

Discussion Paper
Crisis Chronicles: The Long Depression and the Panic of 1873

It always seemed to come down to railroads in the 1800s. Railroads fueled much of the economic growth in the United States at that time, but they required that a great deal of upfront capital be devoted to risky projects. The panics of 1837 and 1857 can both be pinned on railroad investments that went awry, creating enough doubt about the banking system to cause pervasive bank runs. The fatal spark for the Panic of 1873 was also tied to railroad investments—a major bank financing a railroad venture announced that it would suspend withdrawals. As other banks started failing, consumers and ...
Liberty Street Economics , Paper 20160205

Discussion Paper
The Growth of Murky Finance

Building upon previous posts in this series that discussed individual banks, we examine the historical growth of the entire financial sector, relative to the rest of the economy. This sector’s historically large share of the economy today (see chart below) and its role in disrupting the functioning of the real economy during the recent financial crisis have led to questions about the social value of costly financial services. While new regulations such as the Dodd-Frank Act impose restrictions on financial activities and increase their costs, especially those of large firms, our paper ...
Liberty Street Economics , Paper 20140327

Discussion Paper
A Discussion of Thomas Piketty's Capital in the Twenty-First Century: By How Much Is r Greater than g?

Thomas Piketty’s 2014 book Capital in the Twenty-First Century may have been a greater sensation upon publication than Karl Marx’s nineteenth-century Das Kapital. It made the New York Times bestseller list, generated myriad reviews and responses from economists at top institutions, and was the subject of a standing-room-only session at the recent American Economic Association annual meeting. In Capital, Piketty argues that wealth inequality is set to rise from its relatively low levels in the 1950s through the 1970s to the very high levels it once occupied at the dawn of the Industrial ...
Liberty Street Economics , Paper 20150713b

Discussion Paper
Crisis Chronicles: Defensive Suspension and the Panic of 1857

Sometimes the world loses its bearings and the best alternative is a timeout. Such was the case during the Panic of 1857, which started when a prestigious bank in New York City collapsed, making all banks suddenly suspect. Banks, fearing a run on their gold reserves, started calling in loans from commercial firms and brokers, leading to asset sales at fire-sale prices and bankruptcies. By mid-October, banks in Philadelphia and New York suspended convertibility, meaning they would not allow gold to be withdrawn from their vaults even while all other banking services continued. Suspension then ...
Liberty Street Economics , Paper 20151002

Discussion Paper
Beyond 30: Long-Term Treasury Bond Issuance from 1957 to 1965

As noted in our previous post, thirty years has marked the outer boundary of Treasury bond maturities since ?regular and predictable? issuance of coupon-bearing Treasury debt became the norm in the 1970s. However, the Treasury issued bonds with maturities of greater than thirty years on seven occasions in the 1950s and 1960s, in an effort to lengthen the maturity structure of the debt. While our earlier post described the efforts of Treasury debt managers to lengthen debt maturities between 1953 and 1957, this post examines the period from 1957 to 1965. An expanded version of both posts is ...
Liberty Street Economics , Paper 20170208

Discussion Paper
Crisis Chronicles: The Man on the Twenty-Dollar Bill and the Panic of 1837

President Andrew Jackson was a 'hard money' man. He saw specie--that is, gold and silver--as real money, and considered paper money a suspicious store of value fabricated by corrupt bankers. So Jackson issued a decree that purchases of government land could only be made with gold or silver. And just as much as Jackson loved hard money, he despised the elites running the banking system, so he embarked on a crusade to abolish the Second Bank of the United States (the Bank). Both of these efforts by Jackson boosted the demand for specie and revealed the soft spots in an economy based on hard ...
Liberty Street Economics , Paper 20150508

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