Transcripts For CSPAN2 Book Discussion On Naked Money 20160501

Care about the First Amendment to come out today and appreciate each one of you coming. Lets go have lunch and talk more about this. Once will be held at the georgia day care Conference Center which is a spiral staircase. Restrooms on the second floor in your way to lunch look for the yellow wall and you can purchase your own copy of less lessons in censorship affair. Thank you very much. Clap back [inaudible conversations] [inaudible conversations] [inaudible conversations] hello, ladies and gentlemen. My name is john and i work here in the store. Before we get started, if you could please silence or from, just to let you know this evening we are recorded and we went to make sure that your questions are recorded as well. You will see when you have a questionandanswer session tonight if you could speak directly to the microphone i would appreciate it. Finally, once the event is over if you could do a favor floating chairs and please have them against any hard surface once again you have my eternal gratitude. Charles whalen is the reason so many of you are voluntarily spending your day evening listening to Monetary Policy. My favorite description is that best math teacher you never had an formerly a correspondent to the economist went on to write economics and statistics and was widely praised for stripping away the jargon obfuscation of commentators to produce clear entertaining explanations of concepts made to appear far more obscure than they should be. It takes somebody smart to make money seems so simple and Charles Whalen pulls this off. Starting with the absurdities and going on to look at the reasons behind money, why money is going and why can go bad, reading naked money to College Place in haiti notions about fiscal institutions in our focus. At a time when the mechanisms of the Global Financial system relies under an unscrewed me i think the best thing we can do before we attack or defend the system is try to understand it. We are fortunate that someone is here to read laid out for us. He paints a picture of the extraordinary societal senses. Remember when you realize how bizarre this crumpled piece of paper in your wallet really are, we will swap them for brandnew books. Thats a pretty good deal. Ladies and gentlemen, charles wheelan. Clap at thank you for coming out. You may be disappointed to realize there will be no. This isnt about getting rich. Naked money is the third in what we are describing the trilogy. There will be a box that. Never did i imagine i would be here speak in her that i wouldve read books britt three books. Alt. More about this book. It was written as close to biaxin and as you can when it comes to writing about. I was trying to read a book on the gambling industry. As at the time the midwest correspondent for the economist meant. You may or may not know if he spent time in the midwest, go back to the early 90s in places like iowa and it was still legal to have a bingo game at a church if there is any money involved. When you fastforward their 19 riverboat casinos and other forms of gambling. A lot with that you had an explosion of indian casinos. You had all kinds of other forms of gambling and this would be a really exciting thing to read a book about. Ive written columns about casino design, politics of state governments and Indian Tribes as no one. While i was trying to peddle this boat, i was hired to teach a class about economics finance for journalists which would be a great contribution to the field so i called my agent peddling the gambling book inside you know more about the Publishing Industry and there must express how important the ideas are that doesnt get bogged down in the math in the grass. This is fun stuff. There was a long pause and she said no theres not that you are going to write it and its going to be called economics for poet then im going to read it. We took a detour. Someone needs to read it because theres stuff going on there. This came to fill a void. The second book was in some ways the same. Right about the time big data came along i have taken a lot of statistics classes. People who had won the nobel prize arguably the two worst classes ive taken in my life. In some ways this is more frustrated than economics because its very intuitive. You can do the math and do the greek letters or say if youve got a bowl of soup and mix it up appropriately and take a small spoonful, you will know what the whole thing tastes like. If you havent stirred it up like weve been doing lately with internet polls and people not answering phones, a whole bunch of things. Naked statistics was born by accident. There are three related concepts in the book all woefully misunderstood. For example we have two president ial candidates, both of whom have been graced the Gold Standard when the university of Chicago School of business. Theres this thing called the international agm panel and they have a sample of 50 economist. It nicely ideologically diverse. A tremendous group of economists. I gm pulls these economists on issues of the day. Did they kill manufacturing jobs today they ask at the bureau of labor statistics is worth the money we spend on it. When this panel is asked whether the United States would be better off if it went to a Gold Standard, its the only time and it was Unanimous Senate was no. It should cause everybody a little concerned that we have every economist of note saying one thing and a high proportion of president ial candidates saying something else. The book was designed to serve this need and to think that covers our money. Read something about what is money. Money is such a strange calm that that therell be times when i was working on the book werent fully understood it and then it would go away. It is so strange. At the end of the day, its an issue of trust that comes down to money works when other people think money will work. And then there is banking and bacon as as we learned in 2008 has inherent frailties. The thing that will never change about finance is it is basically about intermeeting lenders and borrowers. Do that with conventional banks, repurchase market, shadow big. All kinds of institutions. At the end of the day, people with extra capital give it away temporarily and rent it to somebody else than they expected to get a rental rate and the people who need it are borrowing it which is a terrific thing. A woman called me and said is there a situation where that is a good thing . That is usually a good thing. Buy a house you are 65. All those extra capital to not to put the basement entered euro return. We just had her problems for the people who loaned the money would like to get it back now and all those people who have it cannot possibly pay back even if they put it to good use. Thats what you need to know about the Financial System. 2008 is deep in our memories, night and 29 was fundamentally similar in terms of a big crisis. But in the history of the United States has a history beginning at 78 hundreds there were panics youve never heard of in the 1830s in the 1860s, 1890s and the nature of finance. Theres a pan that. Weve seen that movie. The last piece of the central bank and it is of course the institution over the money. They are the ones entrance to protect the value which is either worth nothing or a lot depending how you look at it. I did love the tweet which is if you think its worth it, give it to us and well give you books in. Its not worth it. You can take your paper money anywhere here in 10 wave it around and demand gold or silver. You can. You just wont get it. It is by no means worthless. People will gladly take it and give your relatively predictable amount of goods and services in return. It is also shares responsibility of this frail banking system, the ones charged with protecting the system that has this fundamental weakness. I will start with this reading. And i will turn to the end will have time for questions and answers. In 2009, north korea did something unusual by north korean standards. The nation issued a new currency that lops currency that lops two zeros off all the bills months under the new currency was declared equivalent to 101 of the old currency and this is not a particularly new trick. Theyve issued new currency with a tool for fighting inflation an entirely new currency to replace the government announcing a shiny new reality worth roughly 2750. None of this is inherently good or bad for consumers upon the old current he can be freely swapped for the new current day. Imagine if the United States instead priced everything in pennies. One day the government announced pennies would no longer be accepted as legal tender and instead 100 pennies can be swapped for a new current become of the dollar after which all prices would be quoted in dollars. A you could always take into a bank and swap them for dollars. Brazilians have nearly a year to convert their old to the new your some european nations such as germany have said they will forever exchange old coins and notes for euros in this country give up the Deutsche Mark for the euro more than a decade and a half ago. But north korea is not like other countries. We north korea engineered its currency reform the government announced only a limited amount of the old currency could be swapped for the new currency. About 690 at the official Exchange Rate. We should take a detour about the official Exchange Rate. You can. In north korea takes north korean at whatever the great leader says it should be worth in dollars. Most people would much rather have the dollar. At six or 90 at the official Exchange Rate is about 35 at the black market rate. Anyone holding large amounts of old currency would see much well then destroyed. That was exactly the point. The north korean government has become increasing an intolerantf black market activities outside the countries official economy. Black market trades were sitting on large stashes of cash. With the stroke of a pen, the government confiscated most of that all the silly accumulated wealth. Of course, many ordinary North Koreans hoping to avoid starvation during the winter had also accumulated large stocks of cash. After the announcement of the reform, the sports news that leaked of north korea made reference to quote chaos in markets it and rail stations, as it was rushed home to swap old money for new. North koreans had only 24 hours to convert their quota of old currency to new currency. A defector told a writer for the new yorker, and one day all your money was lost. People were taken to the hospital in shock. The north korean government had taken money with value and rendered it worthless. Thats a very curious power. One little sidenote is the are a lot of north korean stories in part because it is so strange. It just stands in juxtaposition to all kinds of things but my Research Assistant over the course of the book developed a fascination with north korea. The last time i saw him, he said im going to north korea. I just got to get there. And i thought, this may or may not be a good idea. He did kind of disappear for long stretch, and the next time i heard from him i got this and addressed envelope in my mailbox, and inside was a 5000 north korean yuan note along with the story of how he smuggled it out, and the kim jongun postage stamp which not everybody gets. But you did this get the country with this 5000 yuan note okay. Iused back in the craddick lasti checked. We are back to the north korean yuan which is even more curious. In response to 2000 a financial crisis, the Federal Reserve was aggressively injecting liquidity into the Financial System. The concept of liquidity will be explored in greater depth of the book but for now the basic point is the Federal Reserve was doing everything in its power to lower Interest Rates so struggling banks, as us as consumers would have easier access to credit after the real estate bust. Heres the part that is almost north korean in its weirdness. The Federal Reserve accomplished its task by creating new money. From nowhere. Theres a windowless room at the Federal Reserve bank of new york where traders literally created a electronic money and used it to buy billions of dollars of financial assets. Between january 2008 and january of 2014, the fed inject a roughly 3 trillion of new money into the american economy. One in the money did not exist. The next minute a traitor acting at the behest of the fed bought bonds belonged to private institutions and pay for the securities by transferring electronic funds to the accounts of the selling firms. New money. Money that did not exist just seconds earlier. Click. That is the sound of a guy sitting at his computer in new york creating a billion dollars and using it to buy assets from citibank. Click click, 2 billion more. While north koreas Supreme Leader was taking money with violent and rendering it useless, the fed was going to opposite, creating money out of nothing. Is in the north korean yuan nor the United States dollar has any Intrinsic Value. One cannot take either credit to the government that issued it and demand something tangible in return. Such as gold or rice or cooking or. At least in the United States you would not be sent to a labor camp for asking. North korea could wipe out money and the United States could create it because money in both countries is just paper, or increasingly its mbytes on the computer screen. And that brings us to the third wacky thing going on a roughly the same time that north korea was just we money and the United States was creating. American prisoners were conducting many other transactions using patches of macro. Yes, the oily fish. Prison inmates are not allowed to possess cash. Instead they typically have accounts at the commissary for small items can be purchased with no cash circulates the goods sold can be used as currency. Stamp, power bars and soldier as has been the case throughout history, this becomes easy when theres an informal agreement on a single unit of account such as cigarettes. The item tha that is emerged ase Gold Standard for trade in american prisons since the federal smoking ban moved cigarettes out, is the pouch of macro, or the mac. It comes in a pouch rather than cans. The mackerel pouches are portable and storable which is a nice feature for any currency. Curiously the mackerel has little appeal outside of prison even at discount retailers but behind bars mackerel outsells tuna, chicken and oysters. In part because a pouch of mackerel happens to sell for roughly a dollar in the canteen. So its relatively easy to think in terms of dollars while using macs. Unlike the dollar or the yuan, mackerel does have Intrinsic Value. You can always eat it. In fact, if the North Koreans american economies ran on mackerel, neither the Supreme Leader nor the Federal Reserve could have done what they did. The Supreme Leader cannot go on television and declared that all mackerel is now worthless. Its still mackerel. You might get arrested if try to trade for a winter coat which would always keep it in the basement and it for dinner. One cannot pronounce something worthless that has worth. True government could confiscate all the mackerel but thats a different and much will difficult task. Similarly the United States Federal Reserve cannot instantaneously generate millions of pouches of mackerel where none previously existed. Know what and a windowless room at the fed can push a button and have pouches of mackerel show up. But click click, the sound of no mackerel been created. So weve got this very strange concept of money, and so this is when periodically my head would go like, cant quite figure out whats going on. Heres what it comes down to. Money depends on confidence. Instead of the curious case of indian rupees. According to the Federal Reserve bank of india, it is legal tender as long as it has to impact serial numbers. Thats by the way this industry with you as currency. If youve ever gotten change, one or two through numbers assigned, taped together, which is of course why youre willing to accept the. Same in india. If you present a crumpled, dirty or torn note that any bank the law states that is the get go must be replaced with a crisp new and. Yet on the streets of mumbai you find it difficult to get anyone to accept a torn or overly warm rupee note. And, therefore, no one expects to do business with shopkeepers, express or Street Vendors would accept them. No one wants to be the sucker u. S. To go to the bank to exchange. Of course, the people just accepted the soil to note no one would have to go to the bank at all. In the United States ive accepteaccepta torn dollar billd dollar bills, dollar bills with pictures and numbers on that, take and even one with George Washingtons face cut out. If it has to serial numbers, i would get. But not in india. No one will accept toward rupees because no one will accept warren road peace. When i traveled in the i refuse to accept rupees and i conditioned to for perpetuating the whole phenomenon. It just keeps getting would. In somalia to, the opposite was happening. Money with no legal value was thriving. The currency of choice for small transactions was the somalia schilling which is not legal tender. Dollars were used for large transactions. Due to a long running civil war the central bank of somalia had shut down, transitional federal government was supposed responsible for Monetary Policy but that authority very extended past mogadishu. From the legal standpoint at the time, the somalia schilling had roughly the same legitimacy as monopoly money. The notice regulation have been issued two decades earlier by a government that no longer existed. Use of paper money normally taken to the expression of faith in a government that issues it. In the somalia case for several decades there was effectively no government. Their currency marched steadily on. Why . The short entries people accepted shellings because people excepted schillings. If you poke harder there were so for reasons. First ever useful as a medium of exchange for small transactions just of Prison Inmates are accustomed to pricing a conducting transactions in macs. They were used to bind tea and bread with schillings progress in the coming schillings a small bar of soap want to cause. Somalia has a Strong Client and kinship system in the absence of government the system function as a Strong Social glue that undergirded debate in the currency and was an expectation among members of the networks that others and networks would accept shillings. Paper currencies always made passive consent from the users that theyll Exchange Bills for actual stuff. In somalia does pakistan for an individual classicism risks advertising trust in both himself and his clan. And then finally the absence of functioning government was a good thing about of paper money into space. Supplied shillings was more or less fixed because there is no government to print more. In contrast quasifunction governments often recklessly put currency as they struggle to stay in power. Take the belarusian ruble which was introduced in the 1990s became known as the bunny. Partly because of the hair ingrate on the note but also its unique ability to propagate. The only group in the supply somalia shillings during the civil war came from counterfeiters, and given the high number of coded fix was limited because of the specialist Telecom Equipment and material needed. For this reason businesses and somalia banks sometimes accepted high quality out of this which careered a mindbending logic as explained in one news account. Quote, in imitation of a thing which is already of notional value turns out the worst something. Its like a bank willing to accept counterfeit monopoly money. Not just take money but fake fake money. [laughter] so this is weird. This is the only picture in the book. This is a real sign that appeared in south africa which is close to zimbabwe comments in bob tway had one of the great hype inflations in the 1990s. I have on my desk 100 billion note from zimbabwe. Which i think i bought for 10 thats also because its novelty value and it was in good shape. The sign says toward the paper only to be is in the toilet. No cardboard, no cloth, no newspaper and no dollars. The lower bills have become so useless they were better use as toilet paper down for actual currency. So we reach a paradox here that modern money, the currency used in the United States, canada, europe, japan and every other developed country can be used in they have value because the government had issued and declared them to be legal tender. A century ago the same countries use commodity money, gold, silver, some combination of the two. How was in the name of progress all the worlds most economically vibrant nations have moved from money with Intrinsic Value and finance applied to money with no Intrinsic Value that can produce an unlimited supply . We dont need quality paper and specialist inc. Anymore. And a lot of the cases hyperinflation, particularly latin america in the 70s and 80s the only constraint on how much money they printed was whether they could get enough of high quality paper that they need because they were not producing it. Sometimes the largest import in argentina at the height of the hyperinflation was paper from europe to produce more currency. Its very, very strange, and so let me finish of his with a brief theoretical detour. If we could design the perfect money from scratch, what would it look like . We would have to serve the three functions described earlier, unit of account. Basically you can think in terms of his money and int intuitive d talk about things that bitcoin and discuss whether that is money or not. Its not. A store of value which means if you have wealth in this money come a system going to be around and worth roughly the same about next year or 10 years from now . And a medium of exchange. To that end we would look for a commodity thats portable, durable, the visible and predictably scarce. Gold performs admirably by almost measures but gold has its drawbacks. Gold they make for great jewelry but its limited other uses. When an asteroid strikes earth and youre stuck in the basement with your accumulated life savings in gold he would not deal particularly rich. By comparison of the guy with bottled water and the cans of refried beans will look like bill gates. Asteroids aside, the supply of gold will not necessary increase at the same rate as the overall economy. If theyll the ice in the arctic exposed new gold deposits it would be a spike leading to inflation. This happened during the colonial period whenever there were big gold or silver deposit discovered in the new world, they would bring it all back in prices would go up severalfold. Even if the supply would increase by just the right amount, the same but as Economic Growth creating stable prices under normal circumstances, a high proportion of the world known gold reserves are in russia and china. We would not entrust control of the money supply to foreign powers is interested not always aligned with our own. Gold has some issues. So many to ask the president ial candidates anwar record as saying we have to go back to the Gold Standard, why . We might opt for different commodities such as bags of rice or wheat. These are divisible in a controlled by russia or china. We could fix the portability problem. One could imagine the Commodity Bank were bags of rice and wheat are stored in the paper currencies issued against those bags. We could conduct transactions using this handy Paper Currency or electronic equivalent, but unlike our current dollars each certificate will be redeemable at the Commodity Bank for something with Intrinsic Value. That would give his portable part currency, predictable unit, a regional store of value, and no risk of hyperinflation. Do you really want all of your wealth tied up in rice or wheat . These crops are less predictable than you might think o think the a farmer invents a new technology that quadruples rice fields in your life savings are now devalued by the fact supply of rice has decreased dramatically or maybe some rice scourge that wipes out the storage come even under normal circumstances we have no reason to believe the supply of the chosen commodity will increase at the same rate of Economic Growth meaning that prices will rise or fall depend on its quantity relative to other goods. Would you want to write a longterm contract been nominated in rice if youre not sure about the rice would be relative to other goods 30 years from now . Fortunately there is an easy fix your for the uncertainty surrounding the supply of any single commodity. A currency backed by a basket of commodities. Supposed each commodity dollar could be exchanged for a kilo of rice, a gallon of gasoline, a quart of milk, so one. The accounting would become more difficult but consumers would grow accustomed to the system as long as the value remains stab stable. The holders of these commodity dollars would be insulated against any sudden increase or decrease in the supply of any single commodity. The currency would have real well defined purchasing power. The broader the basket, the more stable the valley of the currency and the more highly correlated it will be with growth and the economy overall. Remember this is a theoretical exercise so lets a dream a little. Imagine a currency that could be taken to some dark road in exchange for predictable quantities of food, energy, electronics, cars, bicycles. The money would not just be backed by gold arise let myself of all the goods and services you regularly consume. Better yet, the purchasing power of this new money, this diverse basket of goods would not fluctuate by more than a few percent to you. You have a good of which are money would buy terms of goods and Services Today and also well into the future. This cool hypothetical month would deliver all the benefits of money backed by single commodity, purchasing power that a steady over time, without the drawbacks to each unit would be redeemable for a broad basket of goods at a predictable rate over a long period of time. Here is a mindbending part of this exercise. What i just described is the dollar, the euro, the yen and many other fiat currencies. Guess they are just paper the bits and bytes, but when the government issuing those countries do their jobs properly those pieces of paper and their electronic equivalent have a predictable value relative to broad basket of goods and Services Even in the distance future. Therein lies the challenge of modern money. Central banks can create money from nothing. They can also make money go away. Click click click, the sound of central bankers growing the money supply or shrinking. Responsible central bankers can manipulate currency ways invest in financial panics and promote stable Economic Growth, irresponsible policymakers can use the same awesome power to create money so recklessly the bills become worth less than toilet paper. History has seen some of each. So thats money. We will skip banking and a briefly go through the last chapter which is doing central banking better. This is organized around three simple principles. The first is we were right. Its oriented around when i was in grad school. What was i taught in grad school about central banking that was confirmed in 2008 . There were a couple things. One is we need a lender of last resort. Federal reserves job is to be banker for the bankers when there is a financial panic to which finances always be prone to having the feds have been is what stops the panic if they did correctly, it is a whole chapter on 1929 and 2008. 1929 we fail. In 2008 i argued we did reasonably well. A central Bank Political independence is crucial to its effectiveness. When i was in grad school i was taught the reason Central Banks need to be politically insulated is because there will always be pressure from the politicians to create more inflation because inflation operates with a lag, so most cases politicians alike to win an election until the central bank, print more money, people think they are richer. Now get elected and they were realize prices have gone up and nothing has changed. Thats pretty much the storefront history. 2000 it was different and that there was so much political hostility to creating more money and propping up the banks. A lot of the political resistance came from the political right wording of hyperinflation but the same basic thing, the Federal Reserve needs to be relatively uncovered from politics so it can do what it believes necessary to stabilize the system and protect the currency. Throughout 2008 the value has remained valuable stable get a modest inflation target is better than super i describe in greater length in the book but as weve seen innocence 2008, if you in for perfectly stable prices, Federal Reserve can only get Interest Rates to zero, we thought. We have not seen negative. It have an inflation target of 2 which is what and it now has, if Interest Rates go to zero, they have gone to negative 2 say may not be paying an any interest but the money youre paying back is worth 2 less than when you boarded. Effectively a negative interest rate. There are practical reasons for modest and stable inflation target. The central bank should regulate the institutions. If youre the one who bails out people when theres a metaphorical fire, you should have the right to make them put in fire alarms. We will talk much more about that in the q a period if youd like but there is a symmetry there. What things we learned in 2008. That are effective tools after the fed hits the zero bound to once Interest Rates hit zero we had qe1, qe2, a bunch of other tools that can be used to put down longterm Interest Rates, things that were at most hypothetical crazy ideas when i was in grad school. Bank of japan tried them first. The fed has done a number of them. We need to pay more attention to systemic risk. They were a fair number of people around 2005 who had a good idea the Real Estate Market was overheated. There are very, very few people who have any sense about the clock and the Real Estate Market would spread so viciously throughout the global system. If using a big short, thats the best illustration of those toxic assets and the bogus rating agencies, attaching value to those assets, thats what happened but nobody saw that coming so somebody argument is a tobacco the central bank in conjunction with the treasury needs to be looking across the system and thinking okay, if that house catches on fire, even if another person is irresponsible, what happens to the rest of the neighborhood . It remains to be seen whether we have successfully done that or whether we just changed the nature of the next crisis. Transparency and good communication matter at the fed as in most institutions. One of the most curious things about the fed is now being opaque integrity was considered to be a strength for a long period of time. If you remember secrets of the temple, he described the fed is more secretive than the cia and so when. This as many bad things, one of which is the markets are looking cant fit with the central bank is doing. So why in the world would you hide . Your country and the second is all kind of conspiracy theories but i dont talk radio and you would not believe some of the questions ive gotten. My favorite Conspiracy Theory is that jpmorgan, was one of the original architects of the Federal Reserve act of 1913, deliberately sunk, built and sunk the titanic because opponents of the Federal Reserve were on the ship and he had booked passage and canceled at the last minute. They went down with the ship. He got the Federal Reserve. Apparently there was a novel in the 1890s about a shipment is called like the titanium that was built and ran into an iceberg and so this where he got the idea. Its also to the Federal Reserve killed kennedy. The has to be at the assassination conspiracy, because hes about to crack down on dissent a bank and they were fighting back. The fact of the central bank is trying to be more public minded, this is one of the things ben bernanke did before the crisis, and then the last established to learn and we are not sure. What is can the Federal Reserve unwind its Balance Sheet and its Balance Sheet in with a just cause the next crisis . Qe1, qe2, the other measures are all conflict with the fed creating all the new money, click click click. That new money is sitting in reserves on the Balance Sheet of thanks for this is that its not, money supply has not exploded in loaned it out but they might. If they started to get in the Federal Reserve unwind this huge stash of reserve . They believe they can but that is as of yet unproven so we got into New Territory with regard to the aggressiveness with which the fed has acted. What should the Federal Reserve be trying to do . The American Central Bank is the only one i know of that has a dual mandate or a discharge with protecting the purchasing power of the dollar and also maintaining full employment. Most of the time, paul volcker which i get those are the same thing presumably you maximize full employment is by making sure theres no inflation or deflation. There are periods when determined to do things in some like ben bernanke would argue, to promote implement that would not message with inflation or might be a little inflationary and then those two objectives come into conflict with one another. Anytime you get two objectives is a potential conflict my daughter is about to start college. Fic work hard and have fun. Most of the time those things are the same but sometimes they are not. We are supposed with the fed ought to be doing. And then the last one is does the central bank operate more effectively with explicit Monetary Policy rules or with the discretion to act as necessary . This is a technical and very political debate. Congress is currently trying to rein in the fed, audit the fed which has nothing to do with whether the fed is dealing with money and everything with explaining decision on Monetary Policy. Some of those bills have been introduced say the fed must declare a set of rules with which it is going to act. If it deviates it has got to come report to congress and white house than that. Some are even more, would take even more control of weight than that. I will stop there on this very important note, that money is important and its also very, very political. I think you see the in the president ial race, in congress and what have you. So thank you very much for coming. I would be happy to answer questions about money, banking, central banking or anything else. [applause] you are faster even with a boot on. Could you say a little bit about the impact of the feds gracious several trillion dollars come with that done to the stock market and other asset prices . And why did what the might mean speak with this is literally the trillion dollar pushing, buying into the. The feds mission is to protect the persons. Many critics warn of hyperinflation which we have not seen. We havent even seen vacating its inflation target. So by that metric it has not been a pernicious activity. Its also true, weve got this bizarre and perhaps unprecedented period between zero Interest Rates, negative now Interest Rates in parts of the world and that is all these other consequences. Some intended subcontinent into. Ben bernanke would say that the fact that will Interest Rates make asset prices go up is exactly what is supposed to be. There are three channels to which low Interest Rates statement economy. One is whatever things that which is its cheaper to borrow and buy things. The second as it tends to cause her currency to depreciate so your exports get cheaper and that put people back to work. And the third is that other asset prices go up. For buying a house become cheaper because you can borrow less, stock prices go up and so on. I dont know, im not sure anybody does, what the effect of all these asset prices, increases might be. And other related things. So, for example, people like, i forget his name come ahead of the reserve bank in india has come in when u. S. Interest rates gets a low, money goes coursing around rest of the world as people look for yield and it is a destabilizing a place like india or a default economies. When the u. S. Starts raising its rates it will come all back. I think the jury is out about the impact is going to be. So far we havent to my knowledge seen bubbles in those places. The law of unintended consequences is probably the most important in Public Policy in general, and central banking in particular. I think well see whether we created the next crisis are minicrisis is something we will be looking for. When i was in law school and early 70s probably before you were born no, i was a life. Those a lot of talk about the money supply, the Chicago School, we should watch this, very important. You never hear about it anymore. The Federal Reserve abandoned the money supply as a tool, and the reason is that friedman conceded that it did not track one way with prices as yet predicted. Big picture, lots more money always leads to more inflation. Friedman is famous for saying inflation is everywhere and always a monetary phenomenon. But in the short run it doesnt track because if theres a big increase in the money supply or the fed is pushing month, and people stimulus, keeping it in the basement, and velocity ghost and you will not see a spike in prices. Its hard to track the money supply and know exactly whats going to happen to prices. When paul volcker beat inflation in the 70s, almost singlehandedly, he abandoned money supply as the two of focus just on Interest Rates and prices are those are more directly observable tools with prices being in perfect because theres a lag there, too, but better than the money supply. So i went and used to be discussion of fiscal policy and Monetary Policy, and they were almost regard as coequals in some ways. It seems like its relatively little discussion of managing the economy of fiscal policy and the ability of congress and executive branch to branch of fiscal policy, and so did nancy been placed on Monetary Policy to handle things that at least theoretically in the past used to be regarded as this is a great point. Theory has not change at all. Monetary and fiscal policy are still petals that can break that can be used to take effect if youre in a downturn nuclear Interest Rates. You can also, most though not all economists would argue, spend more, use fiscal policy, through tax cuts or spending. Testing that demand. Even before 2008 economists said Monetary Policy was preferable only because it was faster and easier. The fed could do without having to get anything throug through congress. Theres a strong voice on Monetary Policy gets near zero, you should turn to fiscal policy to pick up the slack. At a minimum you should not be using, you should not be hitting the brake on fiscal policy us are pressing on the gas with Monetary Policy. As you saw in large part of the world. I think the evidence is not unanimous but quite compelling that austerity turned out to be counterproductive. Nothing is changed but the three. All thats happened is this into the politics, its been very hard to get any compared fiscal policy approach. You have a small stimulus at the beginning of obamas a term but you remember how conflict ridden and that was the people are still thinking the same, shes using Monetary Policy because it is easier. This is almost a followup. Obama really wanted to do a major stimulus, and there was quite a number of economists who believed we should be rebuilding our infrastructure when Interest Rates were so low and prices were low, blah, blah, blah. As you noted, the banks just received huge amounts of money with an obligation. There were no Strings Attached to that money. So they just lined their pockets and sat on the money, and Nothing Happened in the economy. As i understand Larry Summers and the others argued that we couldnt put any strings on it. Im not really certain what the argument was, why it was that good but the strings on but i would like your opinion on was a good idea not, would strings have inhibited the ability do whatever speak with this is a great question. I dont, im not a lawyer so the question is, i dont know, the fed has the authority to lend money to those institutions. I dont know their Legal Authority to then put constraints on the bank. In part because remember one thing that was strange about the way the fed acted is many of the banks were not given a choice as to whether to take the money or not. The reason they did that is, if youve seen any of these moodys, if you said you need the money can you need the money, you both have runs on your Balance Sheet so we need to do is say im giving you all money to nobody when a which of you are in trouble. The fact you have some of you involuntarily taking capital from the Federal Reserve then makes it more debatable as to whether i can put constraints on what to do with it. What i can force you to loan it out or to limit bonuses and so on. I dont know the legal answer. I unequivocally no that they totally botched the pr side of things. Most people a little understand of why this is being done, how bad it would be in the absence of this. And so i think if we had better acronyms, that explanation of the fact that these are loans. By the way the Federal Reserve has been paid back every low it may come everything went against all those. Thats unsatisfying on the legal front but i can see your point that part of what we sing on the political front, donald trump in with Bernie Sanders people are just really, really angry at the pain that was suffered on main street in 2008 in what they perceive as overly generous bailouts to wall street. People are not wrong. Its just not clear that those a better alternative. Let me give you one example of how bad things were. One of the things i learned in writing this book is how close we were to the financial abyss. Every time i spoke to somebody, the closer they were to what was happening in 2008, the more scared they were. The story that encapsulates that in the book, judd gregg was a senator from new hampshire, now former, senior republican on the budget committee. He tells a story by after Lehman Brothers he was summoned to the capital like 9 00 at night on a wednesday night or something. Mitch mcconnell, walks in and Mitch Mcconnell says, the fed chair will be here. In a few minutes to listen carefully to what he has to say. This is a story judd gregg told my class. Ben bernanke walks in and says look, you have about 72 hours to do something, what would eventually become a partner, or the Global Financial system may collapse. Collapse. When i sit down to write the book i want to fact check the story. I sai sent in a note to judd grg answered this is my recollection of what you said. He sent a note back saying thats all right except the last since. What he said was your 72 hours of you do that or if you dont do something, the Global Financial system will collapse. Judd gregg is not an alarmist. So we were really close to mervyn king who i guess was a recently, theres a story in the book about him facing the bailout was at Northern Rock . He gets called out of the meeting and his staff says weve got to get what to do about this. He says welcome what if i dont do anything with they said they would leave the atm machines will stop working. Everywhere. And he said, you know, in that it which would come you havent left a much choice and, having . Of course they failed from the. People dont understand counterfactual the everyone will say look a worse was the the Great Depression was many times worse because we didnt do anything, or do anything effectively. Could you comment on the whole Human Behavior, psychology and office . I have come to believe that psychology is so important in economics in general, but its everything when it comes to money and banking. As some of the sections i read made clear, money is at bottom a psychological creation. If theres a break in trust, even under the Gold Standard by the way because a lot of things did not have enough gold on hand to on all the gold certificates that have been issued. Really under any currency if for any reason including a completely wrongheaded rumor, people beside them it is not worth anything, then it is not worth anything. About to mention psychology is extraordinary important and that is what leads to banking crisis. Its also true theres this subfield of economics called the hazel economics that i would argue that this plan has gotten much better when you move away from this idea that people are automatons that act rationally in all circumstances, to embrace what shakespeare serving in which is where jones and shortsighted and all the rest, and you plug it into models of Human Behavior and things make a lot more sense. Some of the greatest developers including a nobel prize have been at this intersection of psychology, economics and the of course targeted brain size where we can watch people make decisions and confirm what shakespeare also new. I think it really, really important and gross and appreciated certainly a very long time. Last one. Actual i have it too. I hope thats okay. The first as you mentioned the federal as a regulatory body font like to you more about that. Im also choose about you as a status as World Reserve currency, whats the federal and making that or how does that restricted their action . Lets take them in reverse. Well, the dollar is not a great reserve currency so for all the other options. To paraphrase winston churchill. Are you going to go to the euro or the yen . Theres just not that many other options. The yua yuan in china where thes not that much transparency but decision been made. Capital control is still in place and saw. If i did the opposite for the for the foreseeable future to were going to reserve currency just lack of good options. Its not by the way certain it is a great thing. It is certainly true that allows us more leeway on the central bank inside than we would otherwise have. It easier for us to barbican Central Banks around the world want to hold reserves in dollars and so on. Its not clear when you look at fiscal policy that having a so easy to borrow is going to work out well for us in the long run. In some ways it creates bad habits, and those may in the end come back to bite us. The first question was a first and foremost i was very, i praised the fetch response in 2008 but its also true when of the basic reasons the fed was in before 2008 was also the that and i was on a regular phone. The that had the greatest capacity and authority have opted to use it to crack down on the Mortgage Market subprime Mortgage Market and all the other things, was clear by 2008 lending standards were a total force. About 2005 my dog was preapproved for a visa card with a 10,000 credit limit. That was a sign things had gotten out of control. Ben bernanke and others would concede they missed that. The question is how they fixed the problem. Theoretically, i support everything that doddfrank tragedy which is okay. If you have a Financial System that if there are problems come it spreads and affects innocent parties, then theres a compelling reason for regulation to the analogy i like a lot is if youre smoking in bed and you live in the middle of wyoming, its your problem. If youre smoking in bed and you live in georgetown, its our problem. And, therefore, there are layers of kind of things were going to try to do. Were going to say you cant smoke in bed. Thats not a crazy regulation. We may think youre going to do it anyway so well say okay, you also have to spring for which uses even if people do stupid things, and banks because their human do stupid things, we can still contain the damage. A lot of the regulation is to stop stupid behavior. Contain the damage, and in the last is systemic important, risk. There are no controls in place to say a few is institution are important that if something goes wrong, if the sprinklers are not going to save you. Lets say youre a skyscraper, and will give extra vigilance to what you are doing. Theoretically this all makes sense. The question is can you actually do that . One of the nice things, the last person i spoke to was ben bernanke. He pointed out what other people know, which is regulation inherently builds a fence your which is to say, you cant smoke in bed