Original books, pamphlets and periodicals related to the history of the United States. That, we will talk with author Jeanette Greenwood and discuss her book, first birds of freedom, but the migration of africanamericans after the civil war. There were, you know, organizations, every town in the county had when. There were lots of, there were breaks out, quite a few eight societies organized as well, so at this time it was very forwardlooking. Best known as the father of modn rocketry. Well learn about goddards contribution to science through his papers, diaries and artifacts. Robert goddard attributes his first interest in space travel and his first interest in a career in science to a day in 1899. He went outside with a saw and a hatchet, and he was meant to trim the dead branches off a cherry tree. And he climbed the tree i think he made himself a little ladder to get up the tree and while he was up in the tree, he looked down on the fields around him, and he thought how wonderful it would be to build some kind of a device that could leave the earth and maybe even travel to mars. Watch cspans cities tour today at 2 p. M. Eastern on American History tv on cspan3. The cspan cities tour, working with our cable affiliates and visiting cities across the country. Professor menzie chinn, your book, lost decades the making of americas debt crisis and the long recovery. How big is the u. S. Debt, and who owns it . What do we mean by owns . Guest the u. S. Debt is 14 trillion, and its maybe in terms of publiclyheld debt about 70 of gdp. So thats giving you some perspective. It tells you, you know, its an unprecedented amount at least in postwar history. Now, who is it owed to, id say most of it is owed to other americans. And so in some sense you can think about it as were borrowing from ourselves. A sizable chunk is owed to foreigners which if you want a list of main candidates, itd be the chinese and various Oil Exporters. Host what how do you quantify debt . What is considered u. S. Debt . Guest well, thats a complicated question. I mean, theres most of the numbers you hear are debt thats owed by the u. S. Government. So thats actually the number i threw out. But theres a lot of other debt including debt by households to banks, corporations to other corporations and to Financial Institutions. And so, you know, if i were to add up all that debt, it would be sort of double counting. And, in fact, most of the time as economists we talk about the net debt. So whats our net debt to the rest of the world in terms of all private individuals and the government. And that works out to something like, at the moment, 25 of gdp. Now, thats a lot, but we probably in and of itself its not as problematic as certain times. The question is not net debt, you know, netting out what the corporations owe each other. But certain households and certain corporations get into trouble, and theyre unable to pay their debt, and they become insolvent. That ripples through the economy, and you cant stay, oh, theres a dollar of debt here, but its owed to another person here and it washes out. Its those times that lead to crises when institutions and households have counted on having assets, theyve loaned money to somebody, and they cant get it back. And corporations or firms have borrowed money, and they cant pay it back, and that results in a real debt crisis. Host lets talk about public debt. When you talk about the 14 trillion, is that correct, of public debt, does that include future social security, medicare payments, things like that . Guest no, it doesnt. It includes just the outstanding amount of treasuries that are out there. And in general, what im going to do is sort of net out whats owed between accounts within the u. S. , the federal government. So its really just whats the debt outstanding thats being held by the public. Host professor chinn, what is a treasury . Guest a treasury is a security or liability of the federal government thats directly issued by the u. S. Treasury. So borrowed by the federal government. Host do you own treasuries . Do i own treasuries . Guest we no. If were investing in a pension fund, anything like that, were indirectly owning treasuries. Its likely theyll hold a certain amount of government treasuries. I dont, i think, have anything. Typically we dont unless, you know, you have it in some ira thats invested in some other fund. Maybe, you know, a savings bond would be the closest thing that a lot of us would have seen. Host the university of wisconsin, does it hold treasuries . Guest thats a good question, i actually dont know. Probably. Not the university itself, but sort of retirement system that its employees are invested in. Host all right. We say that the chinese are buying our debt. Guest uhhuh. Host what does that mean . How does that operate . Guest well, the way to think about it is the chinese, for a long time, were exporting a lot, lot more than they were importing. And they would, as a country, earn proceeds. And most of it was was in the form of dollars. So they exported a lot of stuff to the rest of the world. Most of the goods they sell are invoiced in dollars, so they get receipts in dollars. And the question then is if theyre earning a lot more from their exports than theyre spending on imported goods, then theyre going to have a pile of Foreign Exchange accumulating. And you could keep it in currency, but, you know, currency gets you zero interest in practical. So what they do is, typically, its held in the form of treasuries. So when you say or you hear somebody say that the chinese hold lots of treasuries or they have big dollar reserves, essentially theyre saying that theyre holding, you know, dollar assets mostly in the form of treasuries because treasuries are in some ways the safest asset in the world. You know, we havent defaulted for a long stretch of time on treasuries, the u. S. Government, and theyre easy to get in and out of. That is, theyre highly liquid. So in some sense its the ideal form in which to save in. And thats why the chinese and many Oil Exporters like saudi arabia and kuwait would have their Foreign Exchange reserves in the form of treasuries. Host as an economist, is that a bad thing for the u. S. . Guest i dont think its necessarily a bad thing that china holds them. I think it would be a bad thing if we kept on having the rest of the world accumulate treasuries at a rapid pace. Because what it means is the u. S. Government is accumulating debt at a rapid pace. Now, those things, those processes that were underway for a good chunk of time during the 2000s and even back into the 1990s, theyre slowing down. So one of the big, earthshaking things that you dont hear about very much right now is that chinas actually running down its pile of Foreign Exchange reserves. That is a sharp, sharp, sharp break with what has happened over the past 15 years. And so we are getting, in some sense, what we wanted that the u. S. Government is, you know, as a share of gdp and as a share of world gdp accumulating debt at a less rapid pace. But its also the case where the rest of the world isnt buying as many treasuries as it used to. And that over time has ramifications for the Interest Rates we pay. You know, if theyre buying less of our treasuries, then relative to anything else the price of treasuries will be lower, and thats the same as higher Interest Rates, okay . So there are many offsetting effects going on at the same time, but thats the tendency. If emerging Market Countries are, including china and Oil Exporters, tend to accumulate fewer treasuries, thats going to put upward pressure on Interest Rates. And that, too, has been a change over the past years where Interest Rates have including Interest Rates on u. S. Government debt have been unnaturally low. Host well, the title. The title of your booking is lost decades. What happened in 2008, and how has that rippled . Guest well, thats a great question, and i think the key idea that my coauthor and i wanted to put forward is that through all of the swelter of acronyms like cdss and cdos and mortgagebacked securities and all these other terms that were flying around, theres basically one, single, underlying story that has actually been repeated over and over again throughout history. And that is that for whatever reasons governments either encourage or on their own push through increased borrowing. Sometimes its in the belief that the times are different and we can manage that increased borrowing in an efficient way and a safe way. So Alan Greenspan sometime in the mid 2000s said, well, were all borrowing much more, but were, in essence, a lot smarter than we used to be. We have computers to manage risk, we have new theories about how to deal with risk, we have new derivatives that can help us manage risk. So the idea that we could just borrow more is not as scary as it used to be. And i think our view is thats a very dangerous idea. And its a particularly dangerous idea because we get into trouble exactly when we borrow a lot, and then the environment changes, and a lot of the borrowing that looked like it was going to be repaid easily isnt. And thats, essentially, 2008. Its the household borrowed to the hilt because they thought, well, housing prices would keep on going up, so it makes sense to borrow. The banks loaned, and they also borrowed. Financial institutions borrowed, and they were partly able to evade regulations because the regulations were outdated with respect to, you know, how much you had to hold in reserve as capital. So you had a combination of financial deregulation, thats a sort of direct government intervention. You had the government itself embarking on a spending spree after the 2001 tax cuts. We cut taxes again in 2003. That encouraged more borrowing. And we had financial innovation. And all these three things led to an increase in borrowing by all sectors of the economy, and it all worked fantastically to give us in this period of prosperity until, of course, it didnt work. That is, people said, oh, lets reassess whether housing prices will keep on going up. Oh, those securities that we issued, i dont think theyre worth quite as much as we thought or the regulators thought. And the whole system starts unraveling in reverse. Host the political response to 2008, ben bernanke, henry paulson, sheila bair, president s bush and obama. Did they get it right . Be. Guest i think once the crisis unfolded, definitely ben bernanke and the Federal Reserve acted correctly. Thats no small measure due to the part that bernankes doctoral thesis had to do with the Great Depressioning and the fact that depression and the fact that, you know, he worked out a new interpretation of why the Great Depression was so severe, and that was because of the collapse of the banking sector. And this view was slightly, actually, a big departure from the dominant view that was associated with Milton Friedman which had talked about the monetary influences. Bernanke talked about credit influences, that you really have to rescue the Financial System to make sure that lending continues. And so i give him a lot of credit for saving things. The Bush Administration did push through a small stimulus package many 2008, and that probably helped a bit. But really many terms of fiscal policy in terms of fiscal policy t. A. R. P. , which was the bank bailout, was incredibly important. Because it reassured people in the financial sector, along with the Federal Reserve actions, reassured people that the Banking System was going to continue. Okay . Essentially, t. A. R. P. Was a recapitalization of the Banking System. The banks had been holding lots of assets that suddenly were less valuable than they originally thought. If that happens sufficiently, then the banks are insolvent, and they either shut down or continue as zombie banks as they did in japan for a while. So you need some money to come in to provide funds to make those banks solvent. And thats what the u. S. Government did. If it hadnt, then i would think that, you know, the Financial System would have ground to a halt eventually. It would not immediately, but it would have stopped lending. And you cant run an economy, actually, without a Financial System thats working. Host professor chinn, are recessions and economic downturns natural occurrences . Guest i think theyre natural occurrences because youre always going to have a confluence of events that strike economies that were going to push them down or up. And so cycles are going to occur. You dont want to think of them as sort of mechanical, so at the moment you hear about people saying this recovery is unnaturally long, its longer than the average, and so it must, by definition, come to an end. My view would be at some time, you know, either the Federal Reserve acts in a way that tips the economy into a recession or some shock strikes that forces the feds hands or some combination of shocks from overseas just induces the economy to tip into a negative growth pattern. And so the big question now i guess there are two big questions. One is, you know, what will the Federal Reserve do. Will it be able to manage to slow the economy down . Thats their objective, never suggesting throwing the economy into recession. The other question is if the Federal Reserve is not the thing that precipitates, is it the combination of world events . And that would be a new event. Most of the time i think we think about the United States as moving along on its own path and not being driven by external influences. If this is a new case where china and chinas slowdown precipitates a greater slowdown in the east asian region which then is transmitted to the u. S. , that would be a new configuration to the world economy. Host was the legislative response in the last, since 2008, has it been effective . Some of the new restrictions, some of the new laws that have been put in place, are they important for stabilization of the economy . Guest so i think that there are many aspects of the legislative response, and, you know, the first one, the first big one was the aara, the american recovery and reinvestment act which was implemented in 2009, and that was a big countercyclical move. That is, as the economy was going down, there was upward movement from that stimulus. And id say that was one of the most important things to push the economy in the right direction. Otherwise we could have been mired in a much longer recession. Okay . That was early on. And most of the effects of that have petered out. But i think that mitigated a lot of the pain and suffering that could have occurred. Now, the other innovations or legislation that was passed, i think, have more long lasting implications, and that includes the doddfrank legislation regarding banking regulation. And so thats really important over the longer term. Insofar as it really, it reduces the incentives for banks to overleverage; that is, to borrow to up in large amounts, only putting in a little bit of their own shareholders money and borrow up using sort of a shortterm Financial Market instrument. Which those are the two sort of things that got the Financial System into trouble before. And i think with the implementation of doddfrank and a sort of International Regulations on banking, so what are called under the rubric of baas sell iii, youve actually made the Banking System a lot more stable basel iii. There still remain some holes in the regulation to the international Financial System, and id say that its you know, one of the things is we fixed problems in the sectors where weve seen the problems. Its likely that the next problem we see is someplace that we didnt expect it or we didnt apply regulations. I mean, one way of thinking about 2008 is, you know, it wasnt the mainline banks that were big problem. Wed regulated them in the 1930s in response to the problems of the Great Depression. But then we encountered a whole set of problems in the shadow Financial System because individuals and firms and banks and other Financial Institutions have worked their way around those regulations, or, you know, used the term of financial innovation. They had innovated their way around the innovations. So we put in a whole set of innovations now. I think its made the system safer for a period of time, more robust, more stable. But people are always going to be looking around for a way of evading the regulations so that they can get a higher rate of return. And at the same time, impose the risks upon the greater Financial System. And thats the hazard, that regulators keep on having to try to keep up with those who are trying to evade the regulations. Host is that the message you want people who read the lost decades to take away . Guest the lesson thats exactly one of them. Its that you cant just say weve had this one big crisis, weve fixed things, now move on. History replete historys replete with banks, households all wanting to leverage up, borrow a lot, and theres a tendency because it induces at least in the short term a period of buoyant growth and returns. Theres always incentives to say, well, theres no trouble. Theres no problem at this point. If im a politician, its going to land in somebody elses lap in the future. If im a household, you might say ill get out just before everything crashes. Or theres a tendency to say times are different now. Were just smarter or were more nimble than we used to be. The old