A brief history of the world's most important economy of the last 100 years focussing on how the Central Bank shaped history, followed by implications for MBA students and advice for investors looking for wealth protection. This was the presentation I used for a talk I gave at IIT-M on 5-Aug-2014.

1. 100 Years of Central Banking
Crises and Consequences

2. "If you were smart in 1807
you moved to London, if you
were smart in 1907 you
moved to New York City, and
if you are smart in 2007 you
move to Asia."

3. Agenda
 The origins of the Federal Reserve
 De-globalization following WW I
 The Crash of 1929
 Regime Uncertainty
 What actually ended the Great
Depression?
 WW II and its aftermath: Industry
 WW II and its aftermath : Money
 Exorbitant Privilege
 Freedom of the printing press
 Henry Kissinger goes to Saudi Arabia
 De-dollarization of world commerce
 Global Triggers
 Why You Need to Know This
 Wealth Protection at a time of crisis
 Discussion

4. The Origins of The Federal Reserve
• The Gold Standard Act of 1900
 Orwellian speak – elastic MS
 From regional banking to national banking
• Panic of 1907
 Treasury expansion from 1905-07
• Morgan, Rockfeller, Kuhn and Loeb interests
• Jekyll Island Club retreat and draft of the Federal Reserve bill
Not the first time central banking has been attempted!
• First Bank of the United States (1791-1811)
• Second Bank of the United States (1816-36)
• Federal Reserve System (1913-201x?)

5. De-globalization following World War I
Global ProtectionismEuropean Protectionism
When goods don’t cross borders, soldiers will

6. The Crash of 1929
Bank of England – Federal Reserve collusion
• 1 GBP = $4.86 prior to WW I
• War financing inc. MS
• Exchange rate fell to 1 GBP = $3.50
• Returned to Gold Standard at $4.86
• Obvious effects:
o Deflation
o Loss of export competitiveness
o Growing unemployment
• Solution?
o Make the Fed inflate its MS!
The role of the Acceptance Paper market
• Bills Bought add to MS
• Bills Discounted temporarily add to MS
o Discount rate < bank lending rate
o Banks faced no penalty
o Rapid MS growth
• Also bought foreign acceptance paper
• All in the name of strengthening the banking
system
Money Supply Growth under a Gold Standard
Bank Failures Hoover’s interference with the market
• Velvet glove on the iron fist
• Subsidizing exports
• Wreaking havoc with wheat
• Foreign loans – even bad loans are good for
America
• Anti-stock market
• Father of the New Deal
• SEC
• FDIC
• Reducing working hours for steel workers
• Public works projects – The Hoover Dam
• Inheritance taxes
• Ban child labour to reduce unemployment
Regime Uncertainty Depression
Regime Uncertainty: Why the Great Depression
Lasted So Long and Why Prosperity Resumed
after the War By Robert Higgs
http://www.independent.org/pdf/tir/tir_01_4_
higgs.pdf
1920s 700 $170m
1930 1350 $837m
1931 2293 $1690m
1932 1453 $706
Federal Deposit Insurance in 1933
Slight bull phase till 1937

7. More on Regime Uncertainty
In a deflationary era, effective risk premia were extremely high
for long-term corporate bonds. Reason: lack of business
confidence.
Duration Yield Multiple
5-year bond 3x
10-year bond >4x
20-year bond 5x
30-year bond >5x

8. Follow The Money
63%
Any guesses on why unemployment rose?

9. What actually ended the Depression?
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Govt
Private

10. FDR Big Business
No more Regime Uncertainty
Military-Industry Complex
World War II and its aftermath: Industry
“If you are going to try to go to war, or to prepare for war, in a
capitalist country, you have got to let business make money out of the
process or business won’t work.” – Republican Henry Stimson, 1940
“Do you think Truman will be more favorable or less favorable toward
labour unions than Roosevelt was?” (May 1945 poll)
5%
55%
20%
20%
More Favourable
Less Favourable
The Same
No Opinion
Robert Higgs

11. World War II and its aftermath: Money
Other
Currencies
The Gold Exchange Standard – 1926-31
Other
Currencies
Bretton Woods System – 1945-71
Waiting for the Pin

12. Exorbitant Privilege
“Any workable and acceptable international monetary system must
not bear the stamp or control of any one country in particular. Truly, it
is hard to imagine any standard other than gold. Yes, gold, whose
nature does not alter, which may be poured equally well into ingots,
bars, or coins, which has no nationality, and which has, eternally and
universally, been regarded as the unaltered currency par excellence
...“
August 15, 1971 – Nixon closes the Gold Window
The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must
protect the position of the American dollar as a pillar of monetary stability around the world.
In the past 7 years, there has been an average of one international monetary crisis every year...
I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in
amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.
Now, what is this action — which is very technical — what does it mean for you?
Let me lay to rest the bugaboo of what is called devaluation.
If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among
the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much
tomorrow as it is today.
The effect of this action, in other words, will be to stabilize the dollar.

13. World Governments Win Freedom of The Printing Press
Now that’s what we would all call a stable dollar!

14. And Gold?
Why did the Dollar still retain its value?

15. Henry Kissinger goes to Saudi Arabia
• The rise of the petrodollar
• The emergence of the era of worldwide fiat money

16. De-dollarization of World Commerce
• The Putin Punt
• Gazprom Deal
• Currency swaps
• Germany as clearinghouse for RMB
• Russian and Chinese Central Bank gold buying
spree
• FATCA
• BRICS version of IMF

17. Global Triggers
• Abenomics and the roads to nowhere
• China’s Ghost Cities and Malls
• ECB’s taxes on bank deposits, pension seizures and
moves toward capital controls
• Argentina Defaults
• Portugal’s largest bank files for bankruptcy
• FATCA and SEC as accelerators of the dollar collapse
• $9b fine on BNP
• Barclays fine
• JPMC fine
• Accidental Americans, FBAR
• T-Bond bubble

18. Why You Need to Know This
"If you've got young
people who don't know
what to do, I'd urge them
not to get MBAs, but to get
agriculture degrees." –Jim
Rogers on CNBC.com.
There’s going to be a huge shift in American
society, American culture, in the places
where one is going to get rich. The stock
brokers are going to be driving taxis. The
smart ones will learn to drive tractors so they
can work for the smart farmers. The farmers
are going to be driving Lamborghinis. I’m
telling you. You should start Forbes Farming.”
– Jim Rogers on Forbes.com

19. Wealth Protection at a time of Crisis
• Will Dollars Save the World?
• Geo-political diversification
• Rhodesia to Zimbabwe
• Balkanization
• Meltdown America by Casey Research
• Porter Stansberry Research – The End of America
• Doug Casey’s International Man
• Hard assets through inflation and deflation
• Bitcoin – a new global currency?

20. E-mail: kashyap286@gmail.com
LinkedIn:
https://www.linkedin.com/pub/kashyap-
sriram/88/51b/951