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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 ...
Working Paper
Allan Meltzer: How He Underestimated His Own Contribution to the Modern Concept of a Central Bank
In his great work A History of the Federal Reserve System, vol. 1, Allan Meltzer contended that monetary policymakers in the Depression simply ignored the quantity theoretic prescriptions that would have prevented contractionary monetary policy. Practically, he was arguing that the Fed should have accepted the responsibilities for economic stabilization now taken for granted with the modern concept of a central bank. In reality, decades of monetarist criticism had to pass before the Fed accepted both responsibility for the behavior of the price level and economic stabilization. In effect, ...
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 ...
Working Paper
The Evolution of the Federal Reserve Swap Lines since 1962
In this paper, we describe the evolution of the Federal Reserve?s swap lines from their inception in 1962 as a mechanism to forestall claims on US gold reserves under Bretton Woods to their use during the Great Recession as a means of extending emergency dollar liquidity. We describe the Federal Reserve?s successes and failures. We argue that swaps calm crisis situations by both supplementing foreign countries? dollar reserves and by signaling central-bank cooperation. We show how swaps exposed the Federal Reserve to conditionality and raised fears that they bypassed the Congressional ...
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.
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 ...
Discussion Paper
Crisis Chronicles: The Gold Panic of 1869, America’s First Black Friday
Wall Street in the late 1860s was a bare-knuckles affair plagued by robber barons, political patronage, and stock manipulation. In perhaps the most scandalous instance of manipulation ever, a cabal led by Jay Gould, a successful but ruthless railroad executive and speculator, and several highly placed political contacts, conspired to corner the gold market. Although ultimately foiled, they succeeded in bankrupting several venerable brokerage houses and crashing the stock market, causing America’s first Black Friday.
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 ...
Discussion Paper
Is There Discount Window Stigma in the United Kingdom?
At the onset of the financial crisis in the summer of 2007, news that Barclays had borrowed from the Bank of England (BoE) received wide media coverage. This information triggered concerns that the BoE's lending facility may have become stigmatized, prompting market participants to interpret borrowing from the BoE as a sign of financial weakness. If such stigma discouraged borrowing, of course, it would defeat the purpose of the facility. We review the history of the BoE's lending facilities and experiences with stigma, both historically and in the recent period. We also compare the BoE's and ...
Working Paper
Interbank Networks and the Interregional Transmission of Financial Crises: Evidence from the Panic of 1907
This paper provides quantitative evidence on the interbank network’s role in transmitting the Panic of 1907 across the United States. Originating in a few New York City banks and trust companies, the panic led to payment suspensions and emergency currency issuance in many cities. Data on the universe of correspondent relationships shows that i) suspensions were more likely in cities whose banks had closer ties to banks at the center of the panic, ii) banks with such links were more likely to close, and iii) banks responded to the panic by rearranging their correspondent relationships, with ...