Feb

16

"Currency guru Barry Eichengreen–the world's leading expert on the collapse of the Gold Standard in 1931–thinks Grexit might be impossible to control. "It would be Lehman Brothers squared," he said."

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The greatest ever changes in the history of human beings and their money came in the 19th century from two disastrous wars: (1) the American Civil War and (2) the Franco-Prussian War. The first created the structure of individual credit dealings that we all live with now - where anyone with any actual money savings has a bank account, credit cards, and property and casualty insurance and people with families have life insurance and investments in securities. None of this existed before 1862 anywhere in the world. What started it off was the literal explosion of printing for currency and debt instruments set off by Secretary of the Treasury Salmon Chase's 7-30 bond issue.

The Franco-Prussian War (called the War of 1870 in France) produced the international gold standard. The German Confederation's receipt of France's reparations gave it sufficient specie reserves; the need to borrow gold to pay Prussia forced France to abandon bi-metallism. The British, in turn, were required to limit the use of silver coin to their imperial transactions, principally with India, while the U.K. and the self-governing countries under the Crown turned sterling into gold. With the U.S. Resumption the major trading nations of the world were on a unitary standard by the end of the decade. The result was the development of a the first international market of private credit independent of sovereign controls and bank regulation. Commercial paper, negotiable, warehouse receipts and bills of lading, commodity contracts for present and future deliveries and the tens of thousands of intermediaries who dealt in them sprang up almost overnight. The conventional narrative of this period pretends that the national banks were somehow in charge of all this. They weren't. The clamor for a flexible currency that led to the creation of the Federal Reserve came from the commercial banks' desire to use their one remaining advantage - their ability to have their checks treated as quasi-legal tender - to regain their former prominence. For the world at large WW I was a tragedy; for the banks it was salvation. International Finance would go back to the good old days of sovereign authority and private credit dealers would stop being such grubby pests.


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