About Kurt Schuler

Kurt Schuler, co-editor of The Bretton Woods Transcripts, is Senior Fellow of Financial History at the Center for Financial Stability and an economist in the Office of International Affairs at the United States Department of the Treasury.

The Fed’s Balance Sheet, 1942-1975

Two students of CFS Special Counselor Steve Hanke have digitized the Federal Reserve System’s weekly balance sheet from 1942 to 1975, accompanying the data with some basic analysis of how assets and liabilities changed over the period. Particularly noteworthy is the behavior of the Fed’s gold reserves, since the period includes the establishment, operation, and end of the Bretton Woods version of the international gold standard.

Two of Hanke’s previous students digitized the balance sheet from its start in 1914 to 1941. The recent digitization, by Cecilia Bao and Emma Paine, is part of their working paper, “Insights from the Federal Reserve’s Weekly Balance Sheet, 1941-1975,” no. 104 in the Studies in Applied Economics series that Hanke edits. The earlier paper, which I blogged about in a previous post, is no. 73 in the series. Both papers and their accompanying spreadsheet workbooks can be accessed from this page. A third paper to be released later this summer will bring the data and analysis up to the present. I read and commented on drafts of all three papers.

New Book on GDP-Linked Bonds

A new e-book, Sovereign GDP-Linked Bonds: Rationale and Design, will be of interest to a number of readers of this blog. Contributors include Maurice Obstfeld (chief economist of the IMF), Patrick Honohan (governor of the Central Bank of Ireland during Ireland’s debt crisis), and David Beers (adviser at the Bank of England). The book is available for free by registering at the site of the publisher, VoxEU. (Hat tip: David Beers.)

Historical Balance Sheets of U.S. Central Banking

Balance sheet data on two episodes of U.S. central banking are now available in spreadsheet form for the first time. Adil Javat has written a paper that digitizes data on the First Bank of the United States. The bank, established in 1791, was federally chartered and partly owned by the federal government. It was the only bank to have a nationwide branch network because states did not allow banks they chartered to branch across state lines, or in many cases even within them. The bank’s unusual attributes made in in effect a quasi central bank. The Democratic Party objected to it for that reason, and denied the bank an extension when its federal charter expired in 1811. The following year the United States became embroiled in the War of 1812 and missed the services that the Bank of the United States had provided. The U.S. Congress chartered a second Bank of the United States that began operations in 1817. It in turn was denied an extension of its charter by the Democratic Party in 1836. A fire at the U.S. Department of the Treasury in 1833 destroyed many records of the First Bank of the United States, so what remains is fragmentary, and is the fruit of searches of various archives by the 20th century historian James Wettereau. Perhaps more records are still out there, gathering dust somewhere?

Justin Chen and Andrew Gibson have written a paper that digitizes the weekly balance sheet of the Federal Reserve System (now called the H.4.1 release) from the Fed’s opening in 1914 to 1941. Their data will be of interest to anyone interested in the Fed’s behavior during the tumultuous period that included World War I, the sharp but short postwar depression of 1920-21, and the Great Depression. Previously — and surprisingly, given how much has been written about the early years of the Fed — digitized data were only available at monthly frequency. Weekly data should offer finer insights into the Fed’s behavior during episodes in which events were moving fast.

Javat, Chen, and Gibson are all students of CFS Senior Counselor Steve Hanke, and wrote their papers in a research course Hanke teaches for undergraduates at Johns Hopkins University. I read and commented on drafts of the papers.

(For the spreadsheets, see this page. There is a link underneath each paper to its accompanying workbook.)

GDP-Linked Bonds

A recent paper, “Making a reality of GDP-linked sovereign bonds,” contends that this is an opportune time to consider how to establish a broad market for such bonds. The paper, by staff of the Bank of England with contributions from the Banco Central de la República Argentina and the Bank of Canada, proposes four next steps: (1) build on existing work on a draft term sheet; (2) develop guidelines for when GDP-linked bonds are most beneficial to a sovereign issuer outside of a restructuring; (3) assemble principles for using GDP-linked debt in debt restructurings; and (4) improve understanding about pricing of GDP-linked bonds.

(Thanks to David Beers of the Bank of England for notification about the paper. I  express no personal position on the subject here.)

Database of Sovereign Defaults Updated

David Beers (formerly of the Bank of Canada, now at the Bank of England) and Jamshid Mavalwalla (Bank of Canada) have produced an update (PDF) to a database (Excel) of sovereign defaults. Coverage now extends from 1970 to 2015. The database shows, country by country and for all countries combined, who was in default, by how much, and to what groups (IMF, World Bank, Paris Club countries, foreign currency bond holders, etc.)

Another useful feature of the database is that it has a score showing how reliable the data are, in the authors’ view. It is all too often forgotten in economics, especially when comparing or combining figures across countries, that the underlying data may vary widely in their reliability, sometimes because of outright falsification, but more usually because of difficulties in measurement. Pointing out where data are of lower quality can spur researchers to go out and find better data or more accurate ways of estimation for filling in gaps.

(Thanks to David Beers for bringing the database to my attention.)

The Bank of England’s Weekly Balance Sheet, 1844-2006, Now Available

The Bank of England has just posted weekly historical data of its balance sheet from 1844-2006. The Bank Act of 1844 required the Bank to post a weekly statement, known as the Bank Return. The requirement began a new era in financial transparency — one that is still not yet fully achieved in many countries. The Bank Act had an influence on many subsequent central banks, within and outside of the British Empire. Many of them were organized in imitation of it and likewise required to issue a weekly financial statement.

The Bank Return is also important in itself. The Bank of England was in the 19th century and in the early 20th century the world’s most important financial institution because of the pound sterling’s role as the world’s reserve currency. Even after the pound ceded that role to the dollar, London remained the world’s biggest financial center. The high-frequency information that weekly data provide are especially useful for analyzing periods of financial panic. (There are also less complete daily data, not yet digitized, that offer even more detail.)

The data were digitized by Huaxiang Huang and Ryland Thomas. Thomas, who kindly informed me of the availability of the Bank Return, is also involved in a project to make other key long-term British historical data readily available: “Three centuries of macroeconomic data,” a revision to which is forthcoming.

Historical Financial Statistics has incorporated some of the data from “Three centuries of macroeconomic data.” Sometime in the summer, Historical Financial Statistics will release a series of spreadsheets showing weekly, monthly, or annual data for a number of central banks, in their original format (copyright permitting) and in a standardized format to permit cross-country comparisons. Among the data that will be included are weekly statements of the Bank of England, Bank of France, Reichsbank (pre-World War II German central bank), Indian Paper Currency Department and the Reserve Bank of India, and Federal Reserve System. Data on a number of other monetary authorities, including the Bank of Japan, Norges Bank, and possibly the State Bank of Russia, will be available at monthly frequency.

Soviet Monetary Statistics

A big omission in many databases of economic statistics for the 20th century is the communist countries, which at one time included more than a third of the world’s people. Their governments were secretive. They did not publish certain statistics and they fabricated others.

Historical research is going back and filling some of the gaps, or replacing bad data with better data. Starting a decade ago, the Central Bank of Russia began issuing a series of print monographs about money and banking in the Soviet period. Michael Alexeev of Indiana University, an expert on the Soviet and post-Soviet economy, recently made me aware that the series is now available online. It is in Russian, but readers interested in the subject whose knowledge of Russian is quite poor, like mine, can use Google Translate to understand the gist of the papers. I will eventually incorporate some of the data into Historical Financial Statistics.

Another central bank that has done much to make available material from its communist period is the Bulgarian National Bank, though the material is likewise not in English.

Financial Crises in Currency Board Systems

In recent years economists have done much work assembling information on episodes of financial crisis. In particular, Carmen Reinhart and Kenneth Rogoff’s 2009 book This Time is Different elevated the study of the issue to a new level by combining a wide-ranging survey with intensive data collection.

Because the subject is so large, work remains to be done on it. Miloni Madan and Alec Maki, two undergraduates at Johns Hopkins University, have made a useful contribution with a just-issued working paper that for the first time examines all currently known financial crises that have occurred in currency board systems. Madan and Maki wrote the paper for a class offered by CFS Special Counselor Steve Hanke. The working paper is from the Johns Hopkins Institute for Applied Economics, Global Health, and Study of Business Enterprise, which Hanke co-directs and which has a link to the CFS. Because of my interest in monetary history, I read the paper in draft and offered comments on it as it developed into an ambitious project.

Madan and Maki bring to light a few financial crises not previously discussed by economists who have gathered cross-country data. There may be other episodes yet to be uncovered relating to currency boards, but it seems unlikely there will be many other important ones. Given how widespread currency boards have been historically, it is remarkable how few crises currency board systems have experienced. Crises have been concentrated in Argentina, Hong Kong, and Eastern Europe.

Australia at Bretton Woods

Selwyn Cornish and I have a CFS working paper out on “Australia’s Full Employment Proposals at Bretton Woods: A Road Only Partly Taken.”

At the Bretton Woods conference, Australia proposed that full employment be a primary goal of international economic cooperation. Australia’s ideas were connected with its historical experience: three enormous financial and economic shocks in the two generations before Bretton Woods that disrupted employment.

The United States in particular opposed Australia’s proposals. They did receive a hearing after Bretton Woods, but never became part of the fabric of international economic cooperation. Happily for Australia, since Bretton Woods it has avoided shocks of the magnitude it experienced in the two generations before. Australia’s proposals remain of interest, though, both because many countries are still far from full employment and because the Bretton Woods institutions have become involved in labor market reforms as part of broader structural economic reforms in member countries.

The paper takes advantage of the knowledge of Australian archives that Selwyn Cornish has built up over the course of his career, which includes a longtime position as the official historian of the Reserve Bank of Australia. I presented the paper at a conference about Bretton Woods held at Yale University in November. A revised version will likely appear in a volume springing from the conference, to be published by Yale University Press. Selwyn and I welcome comments, which we will consider for incorporation into the revised version.

The Money Makers

Eric Rauchway’s new book The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace will interest most of you who read this blog. The economic parallels between the 1930s and recent years are more instructive than we may care to admit.

Eric Rauchway is a professor of history at the University of California-Davis. He spoke at the CFS conference at Bretton Woods last year, giving a foretaste of some of the material in the book. The subtitle gives a pretty complete idea of what the book is about. Franklin Delano Roosevelt is first in the subtitle as he is dominant in the book. Rauchway is determined to rescue FDR’s reputation from former advisers who had their own agenda to promote when they wrote, years later, that FDR was a dilettante with no real understanding of monetary policy. Rauchway argues that FDR had coherent ideas and that his policy on the gold standard through the whole of his administration was well considered both in its economics and its politics. Rauchway points out that FDR made some formal study of economics as a student at Harvard; that well before his presidential bid he showed interest in monetary questions; and, perhaps most important of all, he was open to ideas and sources considered unorthodox, such as the Cornell University professor George Warren Pearson.

As one who is no expert on FDR but who has worked for two politicians, I have observed that politicians rarely have the time or inclination to become expert on the arcana of monetary theory and policy. However, the astute ones—and FDR was a superlatively astute politician—have an ability to rank issues, examine varying views on them more open-mindedly than many experts (because they are less attached to particular approaches), and gauge whether public opinion on them is ripe for change. FDR came into office facing economic catastrophe, and he found a way out that worked.

A generation later, Milton Friedman and Anna Schwartz would argue that the Federal Reserve bore a large measure of blame for the Depression, and that different policy by the Fed would have avoided deflation and limited the downturn to being an ordinary recession. Over the course of another generation, other economists would come to accept their argument. In 1933, FDR did not have the luxury of waiting for those conclusions and he lacked control of the Fed. The gold policy was the one tool at his disposal. I think Rauchway exaggerates the depth of FDR’s monetary thought, but he is correct that FDR’s gold policy—which jolted the American economy back to life—showed a high level of strategic thinking. The advisers who later branded FDR a dilettante misunderstood that he was in reality an experimenter, willing to be unorthodox and eclectic because the times called for experimentation.

What FDR gave with one hand, though, he partly took away with the other. Many of the regulatory policies of the New Deal hampered recovery, working against the benefits of appropriately loose monetary policy. As with the responsibility of the Federal Reserve for creating or at least greatly aggravating the Depression, Rauchway glosses over the clumsiness of New Deal regulation and the harm it did.

The book really shines in its weaving of the interplay between monetary policy, wider economic policy, domestic politics, and geopolitics. The Depression was more than an economic calamity: it threatened to cast the world political order into the flames. FDR understood the dangers posed by aggressive dictatorships and the role that economic policy could play in helping contain them in peace and winning the fight against them in war. Rauchway assesses the interplay between the economic and political forces of the time more judiciously than any previous account I have read.

I will not discuss Keynes, who also appears in the book’s subtitle, because here both Rauchway and I have less to say that might be new to you, though it will be new to the average reader. Suffice it to say that, as with the material on Roosevelt, it ably assesses both the economics and the politics of the time.

Did I mention that Rauchway can really write? He has an ability to keep different narrative threads clear through the warp and woof of events. He also has a knack for crisp summary (example: in 1944 “The United Nations was still very much a notion; so too were many of the nations in it” under German or Japanese occupation.)

The book is pleasing to the eye and to the hand. I have only one complaint for the publisher: having met Eric Rauchway in person, I can attest that the jacket photo does not do him justice. Something to be corrected for the paperback edition, perhaps.