The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach & Education function engages, empowers and educates the public in the Second District. Our outreach mission furthers the Bankâ€™s commitment to the region by listening to the communities we serve and developing programs, analysis and sponsored conferences and clinics to help meet their needs. Our education mission aims to advance public knowledge about the Federal Reserve System and its role in the economy.
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 By mid-October, banks in Philadelphia and New York suspended convertibility, meaning they would not allow gold to be withdrawn from their vaults even while all other banking services continued.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 swept the nation as part of a defensive strategy, supported by local business interests, to prevent the Panic from spreading. While the suspensions appeared successful and few banks ended up failing, President Buchanan was outraged by what he viewed as yet another corrupt banking practice. He proposed making suspension a “death sentence” for banks as a draconian incentive to encourage safer banking practices. In this edition of Crisis Chronicles, we describe the Panic of 1857 and explain why businesses pushed for national suspension to save themselves.
My aim in the second post of this series on Thomas Piketty’s Capital in the Twenty-First Century is to talk about the economist’s research accomplishment in reconstructing capital-output ratios for developed countries from the Industrial Revolution to the present and using them to explain why wealth inequality will rise in developed countries. I will then provide a critical discussion of his interpretation of the history of capital in the developed world. Finally, I’ll end by discussing Piketty’s main policy proposal: the global tax on capital.
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 Revolution—the time of the heroes of Jane Austen and Honoré de Balzac. He supports this argument with voluminous evidence on the history of the capital stock and of inequality in developed countries, which he argues have been moving in ways consistent with his theory. Piketty proposes that governments worldwide intervene to prevent this rise in inequality, most importantly by levying a global tax on capital.
Correction: This post was updated on May 8 to correct the book title and spelling of the author’s name in the fifth paragraph. We regret the error.
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 money. In this edition of Crisis Chronicles, we show how the heightened demand for specie ultimately led to the Panic of 1837, resulting in a credit crunch that pushed the economy into a depression that lasted until 1843.
Centered in London, the banking panic of 1825 has been called the first modern financial crisis, the first Latin American crisis, and the first emerging market crisis. And while the panic displayed many of the key elements of past crises we have covered—fluctuations in money growth, an investment bubble, a stock market crash, and bank runs—this crisis had its own twists, including a Bank of England that hesitated before stepping in as lender of last resort. But it is perhaps best known for an infamous bond market swindle surrounding an entirely made-up Central American principality. In this edition of Crisis Chronicles, we explore the Panic of 1825 and visit the mythical nation of Poyais.
Andrew Haughwout, Donghoon Lee, Joelle W. Scally, and Wilbert van der Klaauw
Today, the New York Fed released the Quarterly Report on Household Debt and Credit for the second quarter of 2014. Aggregate debt was relatively flat in the second quarter as housing-related debt shrank, held down by sluggish mortgage originations. But non-housing debt balances increased across the board, with especially strong gains in auto loans. Auto loan balances, which include leases, have increased for thirteen straight quarters, and originations have not been this high since the third quarter of 2006. The Quarterly Report and the following analysis are based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data.
Last year, our blog presented results from the FRBNY Consumer Credit Panel (CCP) indicating that, at a time of unprecedented growth in student debt, student borrowers were collectively retreating from housing and auto markets. In this post, we compare our 2012 findings to the news for 2013.
This post is the fifth in a series of thirteen Liberty Street Economics posts on Large and Complex Banks. For more on this topic, see this special issue of the Economic Policy Review.
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 suggests that there may be limits to what regulation can achieve. In particular, we show that financial growth has occurred in the more opaque and harder to regulate sectors: private firms, shadow banks, and small nonbank financial firms. Moreover, we find that the stock market values these opaque areas of finance more, suggesting that they may expand even faster in the future.
In the late 1600s, England operated a bi-metallic monetary system of high-value gold coins and lower-value silver coins. In the early 1690s, however, the market price of silver began to rise at a time when the mint price of gold was higher than the market price. Thus, gold bullion was flowing to the mint while silver coins were flowing to the commodity markets. By 1695, nearly half of the silver specie was missing from coin in circulation in England as coins were “clipped” (shaved) with the result that their face value no longer reflected the metal content. Ironically, low-weight coin was still accepted for tax payments. In this post, we recount England’s efforts to remedy the “ill state of the coin of the kingdom” during the re-coinage of 1696.
As Mike Dash notes in his well-researched and gripping Tulipomania, tulips are native to central Asia and arrived in the 1570s in what’s now Holland, primarily through the efforts of botanist Charles de L’Escluse, who classified and spread tulip bulbs among horticulturalists in the late 1500s and early 1600s. By the early 1630s, the tulip was a fixture in Dutch gardens. But Tulip Mania didn’t begin until the summer of 1633, when a house in Hoorn was exchanged for three rare tulips and a Frisian farmhouse was traded for a number of tulip bulbs. The lure of profit enticed novice florists to enter the tulip trade with minimal investment and small parcels of land, harkening back to the days of farmers taking up coin clipping during the Kipper und Wipperzeit. In this edition of Crisis Chronicles, we exchange the trading floors of today for the alcohol-fueled exchanges of the past as we dig up Tulip Mania.
Liberty Street Economics invites you to comment on a post.
We encourage you to submit comments, queries and suggestions on our blog entries. We will post them below the entry, subject to the following guidelines:
Please be brief: Comments are limited to 1500 characters.
Please be quick: Comments submitted more than 1 week after the blog entry appears will not be posted.
Please try to submit before COB on Friday: Comments submitted after that will not be posted until Monday morning.
Please be on-topic and patient: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post. The moderator will not post comments that are abusive, harassing, or threatening; obscene or vulgar; or commercial in nature; as well as comments that constitute a personal attack. We reserve the right not to post a comment; no notice will be given regarding whether a submission will or will not be posted.