Jon Moen and Ellis Tallman wrote a wonderful paper on the Call Loan Market in December 2003.

It explains in detail how and why the Federal Reserve system originated as a further extension of the New York Clearinghouse.

The Central Banks and their own intermediaries (IMF, World Bank, et. al.) are now what the Federal Reserve was designed to be - the people who will never let the markets run short.

The premise then was that the demand for specie (what Friedman called "high-powered money) was an inescapable part of any national banking system and international trade. Settlement ultimately had to be in gold, even if, in a crisis, the clearing of trades would be done Bagehot style - using the central banks' own credit.

In another few years it will be half a century since gold was the ultimate currency for international settlements.

It is now credit turtles all the way down.


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