The Century of Central Banking | The Snider Series | Episode 1 (WiM081)

Summary

Podcast Summary: "The Century of Central Banking | The Snider Series | Episode 1 (WiM081)"

Podcast Information:

• Title: The "What is Money?" Show
• Host/Author: Robert Breedlove
• Episode: The Century of Central Banking | The Snider Series | Episode 1 (WiM081)
• Release Date: November 30, 2021

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Introduction

In the inaugural episode of "The Century of Central Banking" series, host Robert Breedlove engages in a profound discussion with economist Jeff Snyder. The conversation delves into the complexities of the Eurodollar system, the evolution and purpose of central banks—particularly the Federal Reserve—and the historical interplay between monetary policy, economic stability, and global events such as the Great Depression and World War II.

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1. Understanding Money and Wealth

Key Points:

• Definition of Money: Jeff Snyder emphasizes that money is not wealth but a tool facilitating commerce. It serves primarily as a medium of exchange and a unit of account, allowing the real economy to function efficiently.

  "Money is a tool—a tool a very highly specialized modern economy uses to conduct commerce most efficiently, flexibly, and intuitively as possible." ([02:21])

• Definition of Wealth: Wealth is characterized by productive capacity and sustainable enterprises that enhance economic prosperity.

  "Wealth is the productive capacity of the system. And on an individual level are the individual productive capacities." ([04:32])

Insights:

• Distinguishing between money and wealth clarifies many economic misconceptions and allows for a deeper understanding of monetary policy's role in the economy.

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2. Central Banking and Monetary Elasticity

Key Points:

• Purpose of the Federal Reserve: Originally established to provide monetary elasticity—ensuring a flexible money supply to prevent deflationary depressions and stabilize the economy.

  "Its original purpose was stability, as you actually said, but it wasn't price stability so much as elasticity." ([09:01])

• Monetary Elasticity: The concept that the money supply should be adaptable to meet the dynamic demands of the economy, preventing deflation by ensuring sufficient liquidity.

  "Elasticity is the idea that the monetary system should never be completely fixed or completely rigid." ([11:47])

• Deflation vs. Inflation: Deflation is viewed negatively as it leads to reduced economic activity and increased unemployment, whereas controlled inflation is seen as a necessary aspect of economic flexibility.

  "Deflation is much worse than inflation, largely because deflation is paid for in the form of widespread unemployment." ([14:45])

Insights:

• The Federal Reserve's role in maintaining monetary elasticity is crucial for preventing economic downturns, but achieving the right balance is intrinsically challenging due to market frictions and human behavior.

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3. The Great Depression and Central Bank Failures

Key Points:

• 1929 Onset: The Federal Reserve failed to provide adequate liquidity, leading to severe deflation and economic collapse.

  "The Federal Reserve was supposed to supply elasticity when they were reading the situation as already elastic. So the Fed screwed up really big in the early 1930s." ([58:47])

• Roosevelt's Intervention: Faced with deflationary crisis, FDR deviated from sound monetary policies, such as the gold standard, to implement the New Deal and other expansive measures.

  "Franklin D. Roosevelt... started to listen to the economists at the time who said... somebody's got to spend. Somebody's got to do something here because we're in a depression of the kind we've never seen before." ([53:44])

• End of the Great Depression: According to Snyder, the depression only truly ended post-World War II, suggesting that Roosevelt's measures did not fully revive the economy.

  "In my opinion, the Great Depression didn't end until after World War II." ([58:47])

Insights:

• Central bank missteps during the Great Depression illustrate the profound impact of monetary policy on economic stability and the limitations of institutional responses to unprecedented crises.

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4. Bretton Woods and Triffin's Paradox

Key Points:

• Bretton Woods System: Established in 1944, it pegged other currencies to the US Dollar, which was, in turn, convertible to gold. This system aimed to create a stable international monetary framework.

  "John Maynard Keynes and Harry Dexter White at Bretton Woods in 44... was to have a monetary standard that works throughout the rest of the world." ([70:32])

• Triffin's Paradox: Identifies an inherent contradiction in the Bretton Woods system where the US Dollar, serving as an international reserve currency, leads to deficits that undermine the system's stability.

  "Triffin's dilemma is essentially what you need currency, you need an international reserve currency... But under the Bretton woods system, the more that we have dollars available for everywhere, the more likely some of those dollars are going to be repatriated... which endangered the international standard." ([76:32])

Insights:

• Triffin's Paradox underscores the challenges of maintaining an international reserve currency within a national monetary framework, highlighting systemic vulnerabilities when demand for reserve currency outstrips supply tied to national reserves.

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5. Emergence of the Eurodollar System

Key Points:

• Definition and Origins: The Eurodollar system refers to US Dollars held in banks outside the United States, circumventing domestic regulations and contributing to a global, unregulated dollar market.

  "The Eurodollar system is already starting to grease the wheels in other ways." ([76:32])

  "Eurodollar means something very specific. It doesn't have anything to do with the European common currency... it's offshore of the US." ([80:22])

• Regulatory Arbitrage: Regulations like Regulation Q in the US, which limited interest rates on deposits, prompted banks to relocate offshore, fostering the growth of the Eurodollar market.

  "Regulation Q... they could not pay more for deposits... which meant that supplies of dollars could be created outside the United States." ([80:20])

• Impact on Triffin's Dilemma: The Eurodollar system provided a means to mitigate Triffin's Paradox by decentralizing dollar reserves, though it introduced new complexities and challenges.

  "Eurodollar system's early days... allowed banks to take advantage... solve Triffin's Dilemma." ([82:XX])

Insights:

• The Eurodollar system represents a significant evolution in global finance, offering flexibility but also contributing to the opacity and fragility of the international monetary system.

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6. Critique of Central Banking and Future Implications

Key Points:

• Central Banks' Limitations: Snyder criticizes central banks for their inability to adapt to rapidly evolving financial systems, leading to reliance on outdated models that fail under modern economic conditions.

  "Central bankers... couldn't keep it together without it. It was solving Triven's dilemma for them." ([85:00])

• Rent-Seeking Behavior: The emergence of the Eurodollar system empowered banks to engage in rent-seeking, prioritizing profits over economic stability.

  "This privileged position of we're intermediating between money and commerce... rent seeking behavior of the financial system." ([35:51])

• Cyclical Nature of Economic Crises: The discussion highlights the recurring patterns of economic booms and busts, often exacerbated by human hubris and flawed monetary policies.

  "History is cyclical because of it... human beings are just flawed creatures." ([47:15])

Insights:

• There is a pressing need for reform in central banking to address the complexities of modern financial systems. Additionally, recognizing and mitigating rent-seeking within the financial sector is essential for fostering genuine economic stability.

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Notable Quotes with Timestamps

• On Money as a Tool:

  "Money is a tool—a tool a very highly specialized modern economy uses to conduct commerce most efficiently, flexibly, and intuitively as possible." — Jeff Snyder ([02:21])

• On Deflation:

  "Deflation is much worse than inflation, largely because deflation is paid for in the form of widespread unemployment." — Jeff Snyder ([14:45])

• On Central Bank Failures:

  "The Federal Reserve was supposed to supply elasticity when they were reading the situation as already elastic. So the Fed screwed up really big in the early 1930s." — Jeff Snyder ([58:47])

• On Triffin's Dilemma:

  "Triffin's dilemma is essentially what you need currency, you need an international reserve currency... But under the Bretton woods system, the more that we have dollars available for everywhere, the more likely some of those dollars are going to be repatriated... which endangered the international standard." — Jeff Snyder ([76:32])

• On the Eurodollar System:

  "Eurodollar means something very specific. It doesn't have anything to do with the European common currency... it's offshore of the US." — Jeff Snyder ([80:22])

• On Human Flaws in Economics:

  "History is cyclical because of it... human beings are just flawed creatures." — Jeff Snyder ([47:15])

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Conclusion

This episode provides a comprehensive exploration of central banking's evolution, the intricate dynamics of the Eurodollar system, and the persistent challenges posed by monetary policy in maintaining economic stability. Jeff Snyder's insights reveal the inherent complexities and human imperfections that have shaped, and continue to influence, the global financial landscape. Listeners gain a nuanced understanding of how historical events inform current financial systems and the potential pitfalls that lie ahead.

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This summary captures the essence of the conversation between Robert Breedlove and Jeff Snyder, highlighting the critical interplay between central banking, monetary policy, historical economic events, and the emergence of alternative financial systems like the Eurodollar market.

Transcript

[Robert Breedlove]

Foreign welcome to the what Is Money? Show. I am thrilled today to be sitting down with Mr. Jeff Snyder. Jeff, welcome to the show.

[Jeff Snyder]

Thanks for having me, Robert. I'm excited to get into this stuff.

[Robert Breedlove]

As am I. I discovered your work on the Eurodollar University, which is a long form podcast series on macro voices where you lay out the nitty gritty of the Eurodollar system, how it functions, how it emerged and how it's changed over time. I have to, first of all, thank you for that because I knew of the Eurodollar system before your work, but I didn't realize just how big and complicated and important it is. And I think I listened to that Macro Voices series three times. So really appreciate that.

[Jeff Snyder]

Yeah, I think it's amazing, isn't it, Robert? Because you think about something like Libor, for example. I think most people have heard of Libor, but they don't realize what it actually refers to. It's some kind of money raid. There's US dollar markets and it's really the basic Eurodollar rate. And it's one place where you can begin to walk down the rabbit hole into, okay, what's really going on out there? What does this Eurodollar refer to? What does it actually mean?

[Robert Breedlove]

Yeah, as we were just talking offline, a lot of the difficulty in this space is how obfuscated things are. There's a lot of technical jargon, a lot of different terms. As you were even saying, different macro thinkers use their own unique terms. So there's a lot of pieces to put together for the outside listener. So with that in mind, I know we're going to get complicated and in the weeds and all that, but I want to start very simply, actually, which the namesake of this show, what is Money? I've named it that to try and encourage people to be more inquisitive and curious about the fundamental nature of money. And to satisfy my own curiosity, I would like to ask you, a mind that I respect a great deal, that question, what is money?

[Jeff Snyder]

Well, before I think that's a terrific place to start because in the 21st century, especially as we move farther and further away from actual money, physical commodity money, and get into heading towards what I hope is a more digital future. It's a question I don't think many people answer or even think to themselves about. It's just, I got a couple pieces of paper in my pocket that have stamped on it something from the government. That's money. I go to the grocery store, I tap my phone or I tap my credit Card to the machine. I don't know what money is. Something happens and I walk out of the grocery store with some goods. I don't think enough people really stop and think about what it actually is. And what it is not is money is not wealth. That's another thing I think we get hung up on too, is that we talk about people who have money, they must be wealthy. And that's true in a sense, but that's not really what money's purpose is. We talk about the three main functions of money, which are store value is one. But I think the other two functions are more important which are medium of exchange as well as unit of account. And when you think about them, especially those two functions, what you're really talking about is money is a tool. It's a tool a very highly specialized modern economy uses to conduct commerce most efficiently, flexibly and intuitively as possible. So in a really basic level, money is supposed to be secondary to the real economy. And it's a tool that allows the real economy, commerce in the real economy to take place because it intermediates. It intermediates between competing interests. And as we're going to see with the Eurodollar system, it intermediates between often very different systems. So that's how it is a tool. But we always got to keep in mind money isn't wealth, it's a tool. When you look at it from that perspective, then I think some of these other things start to fall into line about how far we've gone from what they're supposed to be doing.

[Robert Breedlove]

Right, That's a great, great intro. I want to ask the follow up question then just to distinguish between the two then what is wealth?

[Jeff Snyder]

Wealth in a very capitalist traditional sense is a productive enterprise that is sustainable. It's not piles of stacks of Federal Reserve note papers in the bank. Wealth is in economic terms, I mean smallly economic terms. It's the sustainable productive capacity to combine labor and capital and all these other secret things that Adam Smith's Invisible Hand that combined together that when you add all these things up to get all these things up, you have a functioning economy that raises the living standards of everybody else. So wealth is the productive capacity in a very aggregate sense. Wealth is the productive capacity of the system. And on an individual level are the individual productive capacities.

[Robert Breedlove]

Got it. Okay, so that's interesting. Defining wealth as the productive capacity, does that include capital too? The things that have already been produced? You put that okay.

[Jeff Snyder]

Absolutely. A productive enterprise is going to be generating capital which is then used to combine all of the Factors of production into the secret sauce of capitalism.

[Robert Breedlove]

Gotcha. So it's the capacity to produce capital plus the capital produced is wealth. And then is it proper to call money a call option on that wealth in a way? Like if you're holding money, you get an option on that in a way?

[Jeff Snyder]

Yeah, I think if you think of more along lines of store value, that's what it's for. Right. I mean, you get paid for your labor in currency and you want that currency to be able to be of use whenever you want it to be of use. If you get paid on a Friday, but you don't go to the grocery store for a couple weeks, the last thing you want is an unstable currency so that two weeks later you're worried about whether or not you have the same that you thought when you traded your labor for this paper. So yes, in a sense that for labor, that is their wealth contribution to the real economy. And if they're trading their labor for paper tokens, that's exactly what it is. It's an option on future expenses, the ability to. To trade your labor one day for goods and services that you're going to require some other day.

[Robert Breedlove]

Right. Okay, that's a good way to look at it. So kind of a social contract through time in a way. Right. You sacrifice your time today and redeem it later.

[Jeff Snyder]

Absolutely. And that's why stability was historically the most important aspect of any monetary system because, you know, unstable period. You know, Weimar Germany is perfect example. It's an extreme example, but it's a perfect example where, you know, people would get rushed to get paid in the morning, take their wheelbarrow to the grocery store because the price of whatever goods they were going to buy had probably changed by the afternoon. That's an extreme example. But that's what we're trying to do is, you know, how do we price labor, how do we price factors of production, how do we price all of these things when we don't, you know, they don't happen at the same time. There's a temporal aspect to this currency is that medium to translate through time, hopefully in the most stable and efficient fashion. Again, it's a tool for commerce to take place because of these vagaries of human existence.

[Robert Breedlove]

Right, okay, that's great. Okay, so I think that segues as well into the path I want to walk down with you today. And so we're going to try to keep it high level. We're going to cover a lot of history though. So to the point of stability, that is stability of purchasing power specifically. That is one of the purposes of the central bank, right? Ostensibly.

[Jeff Snyder]

That's arguable, I guess one of the.

[Robert Breedlove]

Ostensible purposes that they proclaim for themselves. I think I'll let you speak this. Maybe we just start there. I wanted to start with. There have been many iterations of the central bank historically. The one that is dominant in the world today and dominant in the US is the Federal Reserve. Maybe we could just start there. Why was the Federal Reserve established? What were its ostensible aims? And if you want to speak to maybe its actual purposes, if they are different in any way, would love to hear that as well. And then we'll start there on our path, kind of working our way towards the great financial crisis of 2008.

[Jeff Snyder]

Yeah, that's a good place to start. Because again, talking about stability, what is money? The Federal Reserve has gone through its own evolutions too, as money has, as we'll see. And its original purpose was stability, as you actually said, but it wasn't price stability so much as elasticity. And I think everybody knows, or at least the shorthand about the panic of 1907, how J.P. morgan supposed stepped in at the last minute and supplied currency to the system and kept the US economy from falling off into the depressions that it had frequently been forced into over the latter part of the 19th century. So the idea was we don't want to be left to JP Morgan to throw in some elastic currency whenever we get into times of crisis. Let's have a European style central bank operating on the principles espoused by Walter Bagehot, the famed bank of England governor, who said lend freely at high rates on good collateral during times of cris. So initially stability was elasticity of currency. And you can understand, if you know anything about the history, you understand why that was. Because especially in the latter half of the 19th century with these modern depressions that showed up out of seemingly nowhere, people really didn't know what these depressions were. There was a very clear correlation between lack of money, deflation and depression. So stability came to be defined originally as how do we keep the system flush with cash elasticity so that we can avoid the worst case depressions through deflation. So stability was more about elasticity and the downside. And that was the Fed's original purpose. And it wasn't just about these temporary bank crisis that popped up. There was also seasonality to it. The US experienced massive monetary flows from New York and from the west coast into the interior. Because of its agricultural background and trade and all these other things. So the Federal Reserve was really, its first purpose was let's keep the currency system floating and stable. Not really worried about prices, we're just worried about deflation and preventing the worst case scenarios. That was the original Fed purpose, which you get to the next step. Go through the 20s to the 30s. Obviously it didn't work out very well because we ended up in 1929 with some of the worst deflationary currency in human history.

[Robert Breedlove]

Yeah, yeah, that's a great point. So a couple of terms that I want to parse out and get your definition on. First being elasticity itself. So this is a term that's thrown around a lot in these circles, but I don't think many people understand it. Could you just speak to the definition of monetary elasticity and its relationship to economic stability?

[Jeff Snyder]

Elasticity is the idea that the monetary system should never be completely fixed or completely rigid. In other words, the economy is a dynamic place and all the time there are competing uses or the competing demands for currency or competing demands for money, not all of which are good ideas. There's always this, how do we balance elasticity? Elasticity is really about making sure that whoever's in demand for money has the ability to source currency. Because lack of currency, this deflationary condition, is actually a really painful impediment to economic growth and progress. So elasticity is about matching money demand, legitimate money demand, which that's sort of a bad term to use, but for lack of a better term, legitimate money demand, which could increase or decrease with legitimate money supply, which should increase or decrease depending on pound demand, so that we balance these two things out in order to avoid the situation where there's too little money flowing through the economy, which creates this deflationary wave and then depression and all those bad things that come about after it. So elasticity is really about maintaining a good balance between supply and demand. Of course it makes it sound really easy when in fact, in practice it's incredibly difficult and almost impossible.

[Robert Breedlove]

Right, okay, so I want to ask you more about that, but first I'll have you define deflation as well. So are you specifically talking about price deflation? What is this evil or problem of deflation we're trying to avoid through elasticity?

[Jeff Snyder]

Yeah, deflation is essentially where there's too little money flowing through the economy, which creates an imbalance of prices. Instability in prices, it can work out in financial markets too. But in economic prices, where essentially because money becomes too dear, there's not enough of it, real economic participants will value money More than they value the production of, as we said before, real wealth, the production of actual goods and services because there's a shortage of funds. And what that does is at some point, like the early 1930s, if depression is severe enough or the deflation is severe enough, prices have to adjust to the point where actual formally productive businesses are undercutting their own productive capacity because money has become so expensive or in such short supply, it doesn't make sense to actually produce goods and services. That's when you get into widespread unemployment, which is, as John Maynard Keynes pointed out in the 1920s, is the worst of all economic evils. Deflation is much worse than inflation, largely because deflation is paid for in the form of widespread unemployment. Labor is what end up experiencing the worst parts of deflation.

[Robert Breedlove]

So it's the productive enterprises shuttering their workforces due to deflation. Is that the relationship here?

[Jeff Snyder]

Yeah, because prices fall below the cost of production.

[Robert Breedlove]

Interesting. Okay, so I have another. Because this is kind of the crux of a divide between the Keynesian and Austrian school of economics, I think. So one thing I'd like, I guess, to go a little bit deeper on deflation. First, I had Jeff Booth on the show. If you're familiar with his book the Price of Tomorrow, I don't know if you've heard of it. He's making the argument that the entire purpose of the economic system is to create price deflation, actually. Right. This would be people trading with one another to solve problems more intelligently, cheaply, quickly that you would expect. The price of chairs, for instance, as we get smarter at making them, that should decline over time.

[Jeff Snyder]

That's capitalism secret, right?

[Robert Breedlove]

Exactly.

[Jeff Snyder]

Mass production. Lower the unit cost of production to the point that it's available to a widespread marketplace. To me, I know that's deflation because its price has fallen, but it's not monetary deflation that's productive deflation.

[Robert Breedlove]

Okay.

[Jeff Snyder]

I think the most. The best example, the most intuitive example to most people is technology, right? Because, you know, you don't have to go back that far with a decent computer. Used to cost you an arm and a leg, where nowadays they give them away for free almost. You know, the smartphones, for example, used to cost a lot. Nowadays you just sign up for a wireless plan and they're giving them to you. That's productive deflation, which is the secret behind capitalism's combining, efficient combining effect the factors of production along with sufficient money to make it all work. So we do have to distinguish between that productive deflation, which is good, and this Monetary deflation, which historically speaking is universally bad.

[Robert Breedlove]

Okay, there we go. So that helps clarify the monetary deflation component. What is causing that? So this would be a shrinkage of the money supply, I take it. So reduction of cash and credit flowing through the market. So that was a problem, I guess, at least ostensibly. Probably actually, perhaps actually prior to the implementation of the central bank. So maybe you could describe how that was occurring then.

[Jeff Snyder]

It's always a problem. It's always been a problem. It's really how do we deal with it? And you're right, it's not so much that there's a shortage necessarily of supply as much as usually redistribution.

[Robert Breedlove]

Okay.

[Jeff Snyder]

When we're talking about economics, it's usually about flow, how things move around because nothing stands still.

[Robert Breedlove]

Right.

[Jeff Snyder]

And then, you know, as I mentioned before, the United, the early primitive economy in the United States has massive seasonal flows because of its agrarian nature, where money would flow out of the interior to buy products after, after, you know, products were. After the harvest crops. Yeah, exactly. And then it would flow back in once the, once those harvests were sold to the, to the, to the coast, essentially. And the whole point of the banking system was to the private banking system, especially in between the second bank of the United States and the Federal Reserve, was to try to manage these flows so that it doesn't become a massive problem. Of course it did. And that's why you always see bank panics happening in the fall, because that's when money doesn't flow or that's when money flows are the heaviest. And it leaves a lot of places outside of that flow that can turn into bigger problems. So it's always, it's really about, you know, we talk about money supply, but it's. In a lot of ways it's more about distribution because money tends to pool and then we have to try to get it to not pool. How do we get it out of certain hands and moving around the rest of the place that it's needed? That's kind of what the central bank was supposed to be for, was to say, okay, private banks in the east were hoarding cash because they became risk averse, usually for legitimate reasons. But then that causes all sorts of deflationary problems elsewhere. So if the eastern banks weren't going to repatriate money back into the interior, let's have a system in place that can supply some form of currency in lieu of this private redistribution. And that was the Walter Bagehot theory of central banking, which is essentially make sure there are no dry spots in the economy through central bank public activities.

[Robert Breedlove]

Right. Okay, so that somewhat makes sense. I do want to parse apart a little bit more here, because in my mind it seems to be that wouldn't the natural interest rate mediate those flows? How does it become problematic is what I'm trying to get at. So if you have a supply of loanable funds or money and you have demand for it, doesn't the interest rate just act as a price mechanism that mediates the flows already? Why do we need an institution overlaid on top of that?

[Jeff Snyder]

You would think that's the case, right? I mean, that was New Wicksell's contribution. The natural rate of interest, which is supposed to move around and induce that kind of a flow. If money became tight in one area, demand for money, which is supposed to be relatively unchanged, would see the price of money go up, and therefore that would make it equitable or profitable for those who have money to then redistribute in those places at much higher rates. And it seems like it should work really, really well, almost elegantly. It just doesn't because there are any number of frictions that get introduced into the system, including the fact that at times, especially the way the banking system was worked under convertibility, which was periods when real base money, like gold coin, would be hoarded by the public, it wouldn't matter if banks wanted to take advantage of high rates of interest, they simply could not. And even though some rates of interest got to be really high, a lot of banks simply said, we're not going to redistribute money at any price because it's just too risky. And I think where Neut Wicksel really kind of left it too unsophisticated was in the fact that it's a risk adjusted price of everything. And if you think risk is through the roof, it won't really matter what the price of money is. You're going to hoard money anyway. That was certainly the case of the public who were converting paper deposits or derivative deposits for real money or even just cash, which simply deprived the banking system of supply to be able to do exactly what we're saying. So I'm not making the argument that we necessarily need a central bank to manage this. I think that in a lot of ways, the second half of the 19th century managed itself pretty elegantly. There were all sorts of clearinghouses and ad hoc associations that performed the role of central, I mean, clearinghouse debt certificates. In Chicago, for example, during the panic of 1893, as well as the panic of 1907 kept Chicago largely insulated from problems that monetary problems that were arising in New York. But to your point, you would think that the interest rate would be a simple enough, elegant mechanism to govern all of these flows. And historically speaking, it's much more complicated.

[Robert Breedlove]

That's really interesting because it's difficult for me to understand that argument because it seems like, okay, even if there was collusion to hoard all the money and the market rate of interest is just exploding, that you're still creating this incentive for the colluding parties to want to defect. When the interest rate gets to 100% or whatever the number is, it seems like the price would break that hoarding behavior, but I don't know.

[Jeff Snyder]

Well, there's a ceiling on prices people can pay, too. I mean, the interest rate's never going to go to 100% because that's not a realistic number. And so there's also a friction in that respect that there's. There's a limitation of what people can pay for the price of money, because if you're paying 100% interest rate for the price of money, you're probably going to be out of business. You're not going to be able to survive anyway. So it's not a realistic level of price appreciation. So that's sort of a friction. There's. There's a ceiling that the monetary system can, or the economic system can pay in terms of price of money. And you know what that ceiling is. You know, that's kind of what Newt Wicksell was getting into. Was. Let's try, you know, try to figure out where is the. Where are those pain points and make sure that we don't ever reach them.

[Robert Breedlove]

Understood? Okay. All right, so we'll leave that one alone. There's a lot there. We probably talk about it for days.

[Jeff Snyder]

It's even more complicated still.

[Robert Breedlove]

We historically then have decided or depended upon currency elasticity to overcome this. This inferiority of the natural interest rate to mediate flows. Is that correct?

[Jeff Snyder]

That's sort of the idea. And again, it's an ideal. It's not necessarily a workable theory. The idea is that if we have Socratic, enlightened philosopher, technocratic geniuses supported by the government could stand there and say, oh, this is the ideal time to supply currency over here because it's getting dry, using some kind of signal to do that. That was the original intent behind the Fed, which was essentially, look, the 19th century was great, but it was really, really messy. It was really bad in certain times, the long depression, the 1893 depression. We kind of lucked out with the 1907 depression. So there's something not right here. There's all these frictions, there's all these monetary problems. There's all these monetary, you know, lack of distribution, the tendency to hoard emotion. That was one of the things that some of the, that was brought up time and time again. Debating between the Aldrich plan and the early Federal Reserve was, you know, at some point it doesn't matter about the price of money because people come, some become so emotional that money doesn't negotiate anyway. So that was. Yeah, let's, let's, let's create a public entity that can, that's dispassionate, scientific, technocratic, that can stand apart from the monetaries. That doesn't have a real skin in the game. Right. It's not JP Morgan looking to feather his own bed. It's a public institution that's going to do all these other things that can monitor. Because the monetary system, as good as it was, it has a lot of inherent flaws in it. And we think, we think we can solve some of those problems, or at least the worst kinds of problems by elasticity.

[Robert Breedlove]

Okay, that makes sense. At least the idea of it. So what we're pointing out here is a failure of capitalism in the market for money. We're saying that the natural price discovery of money is insufficient to make adequate flows. Is that correct?

[Jeff Snyder]

I think that's too harsh. I think it's not a failure. It's an inherent flaw. And I don't think it's an inherent flaw in capitalism. I think it's an inherent flaw in humanity. I think it's just, I mean, we are not angels.

[Robert Breedlove]

We can't create perfect.

[Jeff Snyder]

And we're talking about incredibly, incredibly dynamic and complex places, that we're kind of doing the best we can. And I think a lot of ways it is the best we can do. Okay, I'm not talking about central banks. I'm talking about more of a free market capitalist system. I think that's the. And recognizing that it's messy, that there's downsides to it, it's painful at times. It's like Winston Churchill said of democracy. It's the worst form of economic system, except all others that have been tried. Right. It's not perfect, but it works when it's allowed to work.

[Robert Breedlove]

You're talking about capitalism specifically?

[Jeff Snyder]

Yes, free markets. The information supply of that's again, money is a tool, helps us supply information about what's going on, what needs to be done and all sorts of other things with it.

[Robert Breedlove]

Right, but there's an inherent flaw here in the purely capitalistic form of money, which would be no central bank, just pure natural interest rate. So is this flaw something that's unique to the market for money that we don't have in other markets, or is it.

[Jeff Snyder]

I don't think so. There's all sorts of. I mean, just the regular commercial marketplaces. There's all sorts of frictions and balances and flaws and anything else that you. I mean, any number of examples. Just talk about trade, for example. I mean, it's, it's, it's a completely difficult. I wouldn't say inherently flawed space. You know, it's not a failure, but it's, it's one of those problems that it takes some effort to work around. And taking some effort means it's not fluid and efficient, which causes frictions and all sorts of other problems. So I think it's, it's an. Again, I think it's not a flaw of capitalism so much as it is a flaw in people. I'm not taking a really dim view of humanity here. I just think it's the way it is.

[Robert Breedlove]

Yes. Okay. No, I agree with you that we clearly are flawed and we have all kinds of mistakes and errors and whatnot. But the way I view the market is a forum that's a free exchange is actually sorting out those errors and biases. It's like the market is refereeing what's valuable, what's not, and it's doing this through price discovery. And so we accept that truth in every market world, it seems.

[Jeff Snyder]

I mean, now you're getting into the efficient market hypothesis, which is that the market. Look, I believe the market is the best way to do that, but it's not a perfect way to do that. And it will make mistakes. It will create all sorts of problems that if left unchallenged or unchecked, can snowball into much bigger problems. And that's where elasticity comes in.

[Robert Breedlove]

Okay, so this is a tough one for me. This is sticky because, okay, you have price discovery or the natural market process, whether it's efficient or not. I agree it's not perfectly efficient because information, it's all about mapping current activity to market data. And it's what system does that best. I think arguably the free market does do that best. That does not mean it's perfect, though. There's still a lot of, what do they say? It's messy, where the sausage is made, there's errors and all these things. But the market is also the thing that clears those errors. Here's the deal with elastic currency. The problem that I can't get over in my mind is there's no willing counterparty to an elastic currency. Given the choice of any human on earth, any rational market actor, do you want a currency that its supply cannot be changed, or do you want a currency whose supply can arbitrarily be changed by this group of guys over here based on what needs they see in the marketplace? So an elastic currency presupposes coercion. It's built into it. And this is something I can't get over. It's like we're saying there's a failure in capitalism so we're putting this public institution on top of it. Yeah, I'm having a hard time reconciling that with my free market.

[Jeff Snyder]

Your definitions are too strict. It's unrealistic. You're sort of thinking about things in a theoretical sense and I think everybody would agree with you in a theoretical sense. The reason we accepted elastic currency, just to be clear here, I don't like the central bank model at all. Central banks are agents of destruction and idiocy and incompetence, as we'll get into. But I understand why their original purpose, and we are talking about their original purpose. We are not talking about the purposes of central bank in the last half century, which is very different than what we're talking about. So to get back elastic currency. Elastic currency is sort of like insurance against inelastic currency. Inelastic currency, people, whether they know it or not, except is a much worse proposition than elastic currency. So it's sort of a trade off, because everything in economics is a trade off. We accept an elastic currency because we have seen time and time and time and time again universally in every kind of economic jurisdiction. There is that in inelastic currency, leads to the worst kinds of problems. We can talk about the details of that, but I think the overview is that we don't live in an ideal world. Therefore we can't have a perfectly inelastic currency, a fixed supply of currency, because we live in a dynamic situation, dynamic economy, where an inelastic currency just cannot keep up with that sort of situation. And the argument for inelastic currency, which I'm sure you know very well, is that, look, elastic currency, as you just said, we're depending upon a group of, you know, we hope are really smart people to perform that elasticity. I don't think that's the only way to create an elastic currency. I think There are other ways to create elastic currency that doesn't involve central bankers or central banks.

[Robert Breedlove]

Right, right, right.

[Jeff Snyder]

And that's, that's the trade off, I think that people want to see. Is that a dynamic, you know, how do we, going back to what we first started with money as a tool, how do we use money most effectively? And I think it's most effective when it's elastic, which matches the fact that we live in a dynamic world.

[Robert Breedlove]

Right, okay. So I do somewhat agree with you here in that when we saw free banking in Scotland, I Forget, was it 16th, 17th century, they had some of the currencies, banks were issuing their own currencies, some of them were elastic where they would increase the supply of currency beyond the reserves intermittently over time. But each one of those banks was effectively staking their own reputation. Right. If they over produced or they increased elasticity too much and became got in a situation of insolvency, they went under. Right. And the capital of that bank was reallocated to more prudent banks. So in that way, I think elasticity could work more of a free market model versus a centrally planned model.

[Jeff Snyder]

Absolutely. But then the question always is how does it work? What is the metric that we're using? And we don't have to define, I mean, how does the system, system use, how does the system evaluate itself? How do we know when currency system wide is becoming too inelastic? And what does too inelastic mean? Right, right. That's the thing. There are no easy answers for any of the. It's not like we can sit and define quantitative rules for exactly what constitutes inelasticity. And the other thing is, again, why elasticity is preferred, is preferable is that we could say inelasticity today is X, but we know by next week inelasticity might be something completely different. And that's, you know, that's kind of what Newt Wicksel was saying with a natural rate of interest was that that would give us there is no one natural rate of interest. He was saying there were several that would give us a sense of general sense of when are we getting into inelastic situation, is it too inelastic and things like that. And I think the reality is there's no hard and fast rules we can come up with that says this is when we need somebody to step in and create some currency and introduce it into the marketplace.

[Robert Breedlove]

Right. Yeah. It almost seems to me to be contingent on the aim, because even we're talking about system wide inelasticity, it's like, okay, then, is our aim to optimize for system stability or do we want to optimize for error clearing, which would be more unstable, I guess, but less accumulation.

[Jeff Snyder]

I would say that would be more stable. Long running. Again, clearing errors.

[Robert Breedlove]

Yeah. Yes, more stable, long run, but the short run would be more volatile.

[Jeff Snyder]

And that's really what banking is supposed to do. Banking is supposed to be the secret to all of this. Behind money as well as economy. Banks are supposed to intermediate, which means they're supposed to look at real economic projects or financial projects and decide, this is stupid, this is insane. Oh, this is a really good idea. So I'm going to lend to this one, but not this one. That's what banks are supposed to do. And the idea behind elasticity is that we keep banks in business. The good ones that are intermediate, the bad ones are the ones who don't have collateral to pay to borrow from Walter Bagehot. Central banks, they're out of business. And we want the bad banks to go out of business because they've shown they can't intermediate.

[Robert Breedlove]

Yes.

[Jeff Snyder]

The problem we get into is banks maybe aren't the perfect way to intermediate in money and credit in an economy. And they add their own layer of complications on top of what is supposed to be, you know, a direct relationship between money and commerce. Now we have finance in between.

[Robert Breedlove]

Right.

[Jeff Snyder]

That gets even more complicated and more interesting, shall we say?

[Robert Breedlove]

Yes, yes. And then you. Yes, the political aspect is where it gets very complicated.

[Jeff Snyder]

I think it introduces right there what most people in our position nowadays think is the worst part of it, which is the rent seeking behavior of the financial system.

[Robert Breedlove]

Yes.

[Jeff Snyder]

And that's really where it comes from, from this privileged position of we're intermediating between money and commerce. And we kind of need that to happen.

[Robert Breedlove]

Yes.

[Jeff Snyder]

But there's that downside that, you know, especially of late, they've taken real advantage of.

[Robert Breedlove]

Yes, yes, yes. Okay, now, all right, that's a great point. I think the original purpose of banks is an excellent point too, that it's effectively matching maturities and credit assessment between savers and borrowers. So it's, it's reducing frictions in the marketplace so that we can fund viable projects. Hey, everybody. As you've no doubt learned by watching this show, Bitcoin is the single most important asset you can own in the 21st century. And one of the most important companies in bitcoin today is Nydig. Nydig's mission is to get Bitcoin into the hands of as many people as possible. One of the ways they are accomplishing this mission is by empowering banks and financial technology companies to offer their own Bitcoin products and services. As a true game changer in the industry, NYDIG is safely unlocking the power of Bitcoin for forward thinking individuals and institutions alike. Led by Robbie Gutman, Yin Zhao and Ross Stevens, NYDIG has absolutely exploded onto the Bitcoin scene recently and has quickly become a leader in this space. So whether you are a professional investor looking for asset management services or a company looking to white label your own Bitcoin product or service, consider NYDIG your single source solution for everything Bitcoin. So we have then the Federal Reserve incepted after the 19th century was a little bit messy. We had a number of these issues that you described. Federal reserve incepted in 1913 I believe.

[Jeff Snyder]

Yeah, they started talking about it in 1908. They came up with something called the Aldrich Plan which was originally looked a lot like the clearinghouse networks I just talked about. They changed a little bit and decided that 1912 they would vote on this Federal Reserve system. They purposely called the Federal Reserve because they knew they couldn't sell central bank or bank of United States number three to the public.

[Robert Breedlove]

Yeah, it had to, they had to take the marketing into consideration. Right. The optics had to be good.

[Jeff Snyder]

I was a lot smarter back then.

[Robert Breedlove]

I have to ask you here if you have any thoughts on the work of G. Edward Griffin and the creature from Jekyll island about the inception of the Fed?

[Jeff Snyder]

Yeah, there's a lot of that. Paul Warburg for example, who comes up a lot, not just in that book but if you read any of the primary source material, he was JP Morgan's agent and there's a lot of self interest in how the system was set up and there's certainly a lot of opportunities to take advantage. Again, where does this rent seeking behavior come from? That's part of it too. But in one sense you look at some of the political angles and the actual politicians setting up the Fed. Think about Simon, what was his name? Senator Simon Owen from Oklahoma. I can't think of his name offhand, who was actually a banker in Oklahoma during the panic of 1893. He was more public interested and I think a lot of his work ended up becoming the Federal Reserve. But yeah, there's a lot of reasonable questions about how the whole system was set up. And some of them are, you know, some of them are legitimate questions and others have been just, you know, they've become Fodder for conspiracy theories just because it was a complicated situation.

[Robert Breedlove]

Right, okay, so just. So from the outset, this ideal institution had some political, some politicization to it that made it a little absolutely less than ideal.

[Jeff Snyder]

Cool.

[Robert Breedlove]

Okay, so how does that then? So it's set out with this aim of kind of increasing stability, I guess, reducing the specter of monetary deflation. What then happens going into the 1929 and I guess the 10 years after that are also pretty important.

[Jeff Snyder]

Absolutely. And what happened, to put it in a nutshell, was massive monetary and credit evolution throughout the late 1910s and into the 1920s, some of it which was necessary because of the world went off the gold standard for World War I. And a lot of that gold ended up flowing into the United States. At the same time, in 1917 and 1918, the Federal Reserve went crazy with what today we would call quantitative easing, buying up liberty bonds and all sorts of other things like that, creating bank reserves to help finance the war. So you had officially a monetary expansion from World War I and the need and the necessities of that. But really in the 1920s, what led to the massive monetary imbalances that became the deflationary Great Depression was deposit based fractional reserve lending. It's nothing more complicated than that, which today sounds very quaint and uninteresting. But back then this was a huge, huge deal. Essentially the level of money and cash flowing through the banking system in public hands was essentially fixed for those 20 years in between, while the level of deposits, I mean, just absolutely skyrocketed. You had something like 16 billion in total deposits around 1919. That ballooned to 45 billion by 1929. It was a massive monetary expansion, but it wasn't money money, it wasn't currency. Now we're getting it to ledger money and deposit and fractional reserve lending. And then of course, because all of those deposits were given the right convertibility and the level of actual vault cash hadn't really changed. Now you have $1 of vault cash supporting say $40 in deposits, whereas you had $1 supporting maybe 10 or 15, 20 years before. And that's just so crazy and balanced that it was a recipe for disaster.

[Robert Breedlove]

Right? So leverage starts to be injected into the system effectively.

[Jeff Snyder]

And again, you could say the free market sort of failed here because the banking system, which was supposed to intermediate good ideas and bad ideas, and I know we can spend a lot of time on the 1920s, but in one sense it was the banking system really failed everybody. They were supposed to intermediate and stop. Not do these ridiculous kinds of activities especially build up that much monetary leverage in the system? And it was kind of. And then of course, the Federal Reserve was supposed to be behind all of that, saying, well, don't worry about it, we got this covered. We're an ideal central bank. And it was one bad idea after another. And it just got to completely unmanageable levels that when the ball started rolling downhill, the snowball started rolling downhill, there was probably no way to stop it.

[Robert Breedlove]

So my thinking here is that in a market system with good flows of information, that when you get to this 40 to 1 leverage scenario, people would start redeeming. It's like, give me the gold, I don't want the paper, I don't want the promise, I want the gold. Was redeemability suspended at this time? I mean, what enabled the leverage to get that high?

[Jeff Snyder]

Everybody was convinced that there was, this was a new era of prosperity, therefore risk was low. And again, everything is priced in risk adjusted terms, including money and credit. So if you think risk is low, then as a bank or an intermediary, you think, well, even though that's a really dumb idea, it's probably going to pay off. So I'm going to lend money over here, I'm going to create deposits to do it, because I'm no longer attached to any real monetary system or standard as a byproduct of coming off of the gold standard and everything else. After World War I, everything was just detached and nobody really had any sense of how to value and how to ground all of this activity in something tangible that could say, you know, I did. I know a lot of people at the time were saying, this is getting out of control. But you know, how human, you know, we, we tend to rationalize behavior, especially when, you know, herd. Everybody else in the herd is doing the same thing. Right, right into recency bias and confirmation bias and all sorts of other things that just. We don't see the, the forest from the trees.

[Robert Breedlove]

So this is like kind of the irrational exuberance. Yeah, exactly. All right.

[Jeff Snyder]

Since it wasn't so irrational, I mean, there is a rational basis for it and you know, to come to their defense a little bit, I mean, it was a brand new situation. We didn't. Nobody had ever seen that type of money printing because at the time nobody considered it money being printed. You know, the deposit multiplier that had been around forever, but it had never expanded in that way. We had a brand new kind of central bank that said, don't worry about it, we've Got this elasticity stuff covered. So we sort of had the Greenspan put back in the 20s. We had also a lot of other evolutions, like federal funds and borrowed reserves and all sorts of other aspects of the monetary system that were brand new but were also supposed to be backstops. So it was like we had redundancies built in place that said if anything goes wrong, we've got all these other ways to mitigate this elasticity, potential inelasticity. Of course, those are all mistaken assumptions, because instead of being backups and backstops, they turn into bottlenecks and made it worse.

[Robert Breedlove]

Interesting parallels, perhaps, for today, this false confidence in novelty.

[Jeff Snyder]

It's exactly the same parallel as the 90s and early 2000s, where you had a massive amount of monetary evolution, bank evolutions, combining together. You had the idea that the central bank, the Greenspan, put behind everything, as well as derivatives markets and all sorts of Eurodollar markets that we'll talk about. All these other sorts of money markets that had developed that made it seem like if anything goes wrong, it's easy to mitigate because we have all these ways to redistribute funds. We have all this elasticity in the system when, just like the twenties, it proved to be the same problem, which was all of our assumptions are mistaken. These backstops are actually bottlenecks, and it makes the problem that much worse. We were just repeated that the 1920s and the 90s and 2000s.

[Robert Breedlove]

That's so funny that it seems to be this recurrent pattern in human behavior to some extent, because I'm reminded here not to jump ahead, but just to mention it, the nifty 50 where people just thought stocks would go up forever. I forget, was that in the 60s, maybe?

[Jeff Snyder]

60S, yeah.

[Robert Breedlove]

I guess we just get overly confident in something new until it blows up, and then we learn our lesson for some small amount of time until we repeat it again.

[Jeff Snyder]

It's right, you know, it's, you know, if you've heard of Neil Howes, the Fourth Turning right. I mean, it's, you know, the generation that experiences the crisis, they vow never happen again. We learned our lesson. But then the generation that follows, they hear the stories firsthand and they think, well, yeah, we're not going to let it happen. We know that this stuff happened and you get the next generation and it starts to fade. By the time you get to the fourth generation away from the crisis, it's like we figured everything out. We can just do whatever we want to do. It's. And it just repeats again. Human beings are Just flawed creatures.

[Robert Breedlove]

Yeah, yeah. We have this, I guess, modern hubris in a way, where once you're four generations removed, you think you're so much smarter than people four generations ago.

[Jeff Snyder]

Haven't you seen the computers?

[Robert Breedlove]

I read this book.

[Jeff Snyder]

Yeah. And it really is hubris.

[Robert Breedlove]

I read this book, the fiat currency inflation in France. It goes through the assignat inflation scenario, and it was the same thing. It was the third or fourth generation after their last great inflation, and they just had. They did not heed any of the warnings. They just thought they had it all figured out and they repeated the exact same thing.

[Jeff Snyder]

What is the old adage? Every generation thinks it invents sex. And that's. There's definitely that kind of idea that, hey, yeah, our grandparents and their parents screwed everything up. But we'll never be that stupid. I mean, no, we. We got. We got their example. We've learned from everything. And it's just. History is not linear. It's cyclical because of it.

[Robert Breedlove]

Yeah. Well, it seems like the wheels are really coming off this time as we sit in 2021. Okay, so to get back to the ARC here, then. Elasticity, kind of our antidote to monetary deflation or instability. Kind of our weapon to keep things moving along. But then it was also. Was it instrumental in war as well? Because I know you mentioned we went off the gold standard for World War I, so we were increasing elasticity actually to fund World War I as well.

[Jeff Snyder]

Yeah, absolutely. And that was usually where, historically speaking, before the modern economy showed up in the 19th century, that was where deflation and inelasticity came from. Because you get into a war, the government would confiscate as much funds as it possibly could, leaving the system dry, which wasn't as much of a big deal back then, because in a largely subsistence agrarian economy, money isn't necessarily as vital a component as it is in the modern sense, but it was still a deflationary problem, and it developed into all sorts of bad things. I think the quote from Copernicus applies as well as Isaac Newton recognized that prices and sound money and money availability are all tied together because of these things. War was, historically speaking, where you could see those relationships come out because of necessity, really. At least the governments say it's a necessity.

[Robert Breedlove]

Yeah. Interesting, interesting. Okay, so then we. Yeah, there is just a rating of property to, you know, grabbing whatever is not nailed down to go and fund warfare, in a way.

[Jeff Snyder]

Yep, exactly. And they're going to declare you an enemy of the people and confiscate every liquid Asset you have.

[Robert Breedlove]

Right. And then elasticity would seem to be an expedient to that then. Right. Because then you just increase the money supply and use it to buy whatever you need versus they actually have to go out and directly confiscate assets.

[Jeff Snyder]

Understanding that once you create inflationary currency, you're kind of spinning your wheels because then you have to create as much currency as prices go up and you're kind of standing still. I mean, that was a problem in the American, American Civil War. The introduction of greenbacks, you know, the paper price of goods spiraled out of control, which required more greenbacks, you know, and eventually you're kind of making the problem worse. But, you know, you know, extenuating circumstances, like something like the Civil War, I think that's, you know, there's justification there for doing anything and everything to try to. To gain the resources to win the thing.

[Robert Breedlove]

That's interesting. So there's this very deep connection between warfare and money as well. Every time you go to war.

[Jeff Snyder]

You'Re.

[Robert Breedlove]

Pouring in all the resources you have. And monetary elasticity is, I guess, just the fastest way to access resources.

[Jeff Snyder]

Exactly.

[Robert Breedlove]

Interesting. And then I guess the other piece to that is you're not confined. I think thinking of rulers of old, like monarchs, they're kind of confined to their own balance sheet when they go to war. Right. They have their war chest of gold. I guess I could clip the coins.

[Jeff Snyder]

Usually we're empty. Historically speaking, monarchs were the poorest people on the planet because they owe money to everybody.

[Robert Breedlove]

Yeah.

[Jeff Snyder]

It's not easy being king or queen. You always have to have so much patronage. And that's one of the problems, especially in the English system, where the English developed Parliament, for example, Parliament was, hey, you can't just tax us whenever you feel like it. We need to have some sort of. We need to have some kind of schematic or framework in place so that, you know, you know, the king or the monarch just can't confiscate our goods and say, you know, I'm going to tax you to everything that you have.

[Robert Breedlove]

Yeah, yeah. So heavy is the head, as they say.

[Jeff Snyder]

Yeah. Every time you wanted to go to war, everybody underneath you knew what that meant. Tax collectors were going to show up shortly, which meant bury all the valuables.

[Robert Breedlove]

Right. Okay. So to that point, to some extent. So we've gone through 1929, things are pretty bad. Executive Order 6102, how does that fit into the picture?

[Jeff Snyder]

What do you do once you're captured by deflation? That's really what it Was. And Roosevelt, interestingly enough, FDR was a sound money and sound budget guy. If you go Back to the 1932 election, you listen to Roosevelt. He sounds like Ross Perot. It's like, wait a minute, who is this guy? And he said, we want to run balanced budget. We want to have a sound dollar. What happened was he started to listen to the economists at the time who said, look, you may want to run a balanced budget, but somebody's got to spend. Somebody's got to do something here because we're in a depression of the kind we've never seen before. What convinced Roosevelt to act in both the monetary and fiscal realm is the fact that, yes, historically speaking, unsound money leads to bad consequences. But, guys, we're in a great depression. We're already stuck in a massive hole. So how much worse can we actually make it? And that's the argument that gave us the New Deal, that gave us the idea we needed to go off the gold standard and try anything and everything. Because this was, you know, this was an existential crisis for the United States as well as many places around the rest of the world.

[Robert Breedlove]

Right, right.

[Jeff Snyder]

That's not a defensive fdr. That's simply what he was thinking.

[Robert Breedlove]

Sure, sure, sure.

[Jeff Snyder]

He maintained, you know, in the 36 election, for example, he said, look, we tried as we needed to try everything because in 1933, the world was ending and we had to do something. And that was the idea was we're not supposed to mess with the gold contract. It was called. Well, the gold contract didn't seem to help us here. So let's try to get. Let's get rid of the gold contract and see if we can get ourselves out of it.

[Robert Breedlove]

Right, right. Okay, so how was that, Was it pitched then as an economic stimulant? It's like we're going to take all the gold and fund whatever public spending.

[Jeff Snyder]

Program it was absolutely back to elasticity. What they said was that gold was acting as the agen of inelasticity because it was being hoarded by the public. It was being hoarded by bankers, it was being hoarded by the French. It was being hoarded all sorts of places. And so it was a huge impediment to elasticity because it was being hoarded. Now you make the argument that it was rationally hoarded, but again, FDR said, I gotta do something here. I mean, unless, you know, FDR kind of made it worse in 1932, that last devastating wave of bank failures in late 32 into 33 were probably the cause of FDR to begin with because of what he said, he's not going to continue the gold standard, he wouldn't support the dollar and things like that. But again, his idea was we got to do stuff. Radical kinds call for radical measures.

[Robert Breedlove]

Right, okay.

[Jeff Snyder]

So whether they were the good wise measures, there's a debate there, historically speaking and I'm not going to come down on the side of FDR much, but that's what he was thinking.

[Robert Breedlove]

So tell me if I'm stating this correctly and then want to ask a question? So Executive Order 6102 was passed. The gold was effectively confiscated, or I think they mostly confiscated it from the banks, not individuals. But it was confiscated from individuals as well, at least in the letter of the law. And then gold was repriced from around $21 to $35. So that was a haircut of 70ish percent. Absolutely. So that was effectively a direct confiscation of property. What would have happened in your opinion if that had not taken place? Say the property was not as confiscate able. And you know where I'm thinking here, if this had been a bitcoin, not a gold thing.

[Jeff Snyder]

Right.

[Robert Breedlove]

What would have the consequences likely have been?

[Jeff Snyder]

I think that they would have tried other different ways to try to create inflationary circumstances. And there probably were other ways to have done it really. The revaluation of gold, which was a punch in the face of every American because it revalued. Yeah, I need gold. I'm going to give you paper dollars at this lower price and then I'm going to revalue the dollar which basically took money away from you. I took confiscated your store of value wealth, you know, the transactions that you traded your labor or your business for, previously expecting it to be worth this and now it's worth a hell of a lot less. The idea though was going back to what we talked about before. How do we get gold circulating throughout the economy and circulating throughout the global economy. So if we reprice gold into pay more paper dollars for gold, the idea is that gold will flow into the United States which will then reflood the banking system with liquid money. And therefore the banking system can get itself up off the ground and start doing the things we need the banking system to do. Which by the way is what happened because gold started to flow into the United States by the bushel full. In fact, by 1936 and 1937 the BIS was complaining that here we have too much gold in the United States, it's inflationary currency didn't turn out to be that way, but that's exactly what did happen. Now, were there other ways to have combated the deflationary depression without devaluing the dollar? I think there probably were. Among the others was just to stabilize the banking system and create elasticity through other means, including the Federal Reserve actually doing its damn job. Which, I mean, that was Milton Friedman and Anna Schwartz's critique. And their book of monetary history was essentially that as this deflationary currency, wave convertibility and all that stuff started to wash over the banking system in 1929, 1930, the Federal Reserve stood on its hands and said, there's no demand for money, so why would we rediscount bills and things? The Fed was supposed to supply elasticity when they were reading the situation as already elastic. So the Fed screwed up really big in the early 1930s, and then it was Roosevelt who thought, well, I can't depend on these idiots, so I got to have to do something myself to try to get us out of it. And it's arguable whether or not that was the best way to do things.

[Robert Breedlove]

Right, right, right. Okay.

[Jeff Snyder]

In my opinion, the Great Depression didn't end until after World War II. So nothing that the Roosevelt actually did ended the Depression. Because you look at any number of economic statistics and even Roosevelt's own admission, we never really recovered. Now things were moving forward. We had some reflationary currency, but 1936 and 1937, that disrupted it. By the end of the decade, employment levels and things like that were less than they had been in 1929. So by no means was there any recovery in the 1930s. I think it was because these radical ideas were probably not the best choices to have made. But I can understand why they were making that.

[Robert Breedlove]

Yeah, desperate times, desperate measures kind of thing, right? Yeah. That's interesting because I think one of the pieces you wrote, you actually said that Jerome Powell today admits that Depression era error of central banking. I think Milton Freeman maybe commented and said, hey, clearly the Fed did not act when it should have acted.

[Jeff Snyder]

Ben Bernanke, in 2002 at Milton Friedman's 90th birthday, stood in front of Friedman and said, as a member of the Federal Reserve, Ben Bernanke said to freedmen, yes, we did it, we won't do it again. And then five years later, they did it again. Irony of famous last words.

[Robert Breedlove]

Incredible. So funny. Okay, all right, then we're going through the 30s. Do we then go, and there's gold flowing into the US As a result of this repricing, does this then lead us straight into World War II?

[Jeff Snyder]

Yeah, because as much as there was reflationary recovery like tendencies in the US and around the rest of the world, it was not a full and complete recovery, which left obviously the world susceptible to Nazism and fascism and every other ism you can possibly think of. Because year after year of some really tough economic environments, people quite naturally flow toward extremes because people at extremes claim to have all the answers to all the world's problems. Whereas people in charge like FDR and others would say, well, we're fixing it.

[Robert Breedlove]

And you.

[Jeff Snyder]

I can't. You keep telling me you're fixing it, you're doing all this radical stuff, but I don't really see this. So I'm going to, I'm going to gravitate toward one pole or the other. And that's, that's really what left the world exposed to World War II was the fact that the Great Depression may have begun in 1929, but it did not end before World War II started.

[Robert Breedlove]

Gotcha. So, yeah, when things are bad, people are more likely to run into the arms of authoritarians who are just the strong man. Right. Just promising to make change or have.

[Jeff Snyder]

The answers, or even just somebody who says, I know what's wrong and I can fix it. Whether they know what's wrong and can fix it or not, that's a very comforting message. And again, we're talking about parallels between then and now.

[Robert Breedlove]

Right.

[Jeff Snyder]

What has happened around the world over the last 10 years is exactly the same thing. People are not getting answers and they're turning to more extremes. Whether it's right wing or left wing or whatever you want to call it. It's definitely extremism is on the rise because people in authority are saying, we've got this covered, everything's fine. What are you talking about?

[Robert Breedlove]

Yeah, interesting. Okay, so then, okay, so gold is flowing. Actually, I think Hitler too. He was born out of the ashes of a hyperinflation. Right. So this was Weimar Republic, is that right?

[Jeff Snyder]

That's the early 20s.

[Robert Breedlove]

Early 20s. Okay. So then economic disaster in Germany. And then a guy rises up and says he's going to fix things, which here's the other. This is kind of a pernicious problem because those authoritarian measures are very effective in the short run. They can be, right?

[Jeff Snyder]

They can be, yes, absolutely.

[Robert Breedlove]

It's a great enticement, an inducement to get people to move and act in accordance with this one singular plan of action, to mobilize capital and labor quickly. The problem so it's great speed initially, but it doesn't persist over time. Well, because the absolute power issue, well.

[Jeff Snyder]

Then the information issue, when you're centralizing decision making, you don't have a broad enough base of information flow that you can actually make wise and effective decisions. That's right, exactly. I'm in charge. I can ignore whatever I want to ignore. There's no central governing feature. I can just arbitrarily decide this is what I'm going to do. And I do. I act as an authoritarian on political, not economic expedience. Right. I don't care about the economy. I just care about maintaining my own power structure, which is an economically inefficient way of doing things. It kind of makes things worse, but still, once people are captured in that mindset, it becomes cult like and religious like, and they don't care about effective results. They care about whether or not they feel like they're being taken care of.

[Robert Breedlove]

Understood. Okay, so then and again, you know.

[Jeff Snyder]

Just this getting back to why Elasticity. This is why. Because once that elasticity breaks down and you get into this deflationary trap, it leads to all sorts of all these other problems that are so intense and so difficult, it's hard to get out of it. The answer is we need to avoid ever getting into the deflationary trap to begin with.

[Robert Breedlove]

It's such a pernicious problem, though, because then doesn't the inflation lead to its own trap? Typically, at some point, assuming you get.

[Jeff Snyder]

To the inflation, it's not one or the other. There's no binary construction here. We're shooting for the middle ground, which by and large is where most systems tend to go when they're efficiently running.

[Robert Breedlove]

Interesting. Okay. All right. So the gold flows. My understanding is that when Hitler would invade a country, I think when he invaded Poland, his first order of business once he's conquered Poland is to go to their central bank and raid their gold. How much influence did the flows of gold have on the geopolitics of World War II?

[Jeff Snyder]

Oh, it's huge. That was the political question that started back in the late 1920s, which was that gold was not yet equitably distributed around the world. In fact, the British were always chronically short of it. Obviously, the Germans were in the 20s because of the Versailles Treaty and the fact that the Allies demanded repayment. War reparations in gold. So Germany, which led to the Weimar hyperinflation, they never really solved that problem, especially in the British after 1925, when Churchill demanded they go back on the war standard at the pre war price, which caused all sorts of problems there. So even before you get to the Great Depression, long before you get to World War II, you have gold that is pooled up essentially in the United States and France, which you could argue is probably the worst places to have gold hoarded, especially the French. Sorry to invest in France, but. So you have unequitable distribution of gold before we get to the Depression. And then it gets worse because of the US Dollar devaluation and a lot of gold just ends up in the United States hands anyway. The United States repatriated that gold with the beginnings of a paper currency standard along the lines of what the British pound block had been doing up until that point. So there's the first rumblings of what would become the Bretton woods standard in the Great depression, World War II era.

[Robert Breedlove]

So I have this kind of, I don't know, I guess it's theory that the phrase I put around it is that money is the means and ends of all warfare. So clearly money is necessary to fund warfare. And I think in most cases it tends to be the ends as well. The country is kind of invading a country to commandeer their tax base or confiscate their gold, whatever it may be. Do you think that's accurate here? Were we fighting over the gold in this time?

[Jeff Snyder]

I don't think that's accurate. I think it's on the right track, but it's not exactly what the aims are because it goes back to what we talked about before. What is wealth? Wealth is not money. So what is Hitler actually looking for? Yes, he was looking for Lebensraum and room to expand, but he was also looking to confiscate productive economic capacities that weren't just gold. You know, there was a lot of good businesses in the Slavic countries like Czechoslovakia or Austria. Austria was definitely a commerce rich environment. It wasn't necessarily Austrian gold, it was Austrian businesses, Austrian trade capacities. Let's take those, let's take real economic wealth because they weren't going to defend themselves. But that's really, I mean, that's the real secret to economic growth and success is not necessarily gold. But let's take the productive capacities, let's take the businesses that are working and put them under our framework that all flows up into what is essentially a Ponzi scheme. Anyway. Let's do that.

[Robert Breedlove]

Gotcha. Okay, so even on a hypothetical Bitcoin standard back then there still would have been massive incentive to commandeer the productive enterprises.

[Jeff Snyder]

I think so, yes. Okay, makes sense again, the flaw in human character, the dark side of human beings.

[Robert Breedlove]

Just a bunch of violent apes that we are. Okay, so then, as a result of this process, you make the point that most of the gold pooled in the US and France, eventually the Allies, prevail. My understanding is that now, because the US Is holding most of the world's gold, it has a significant leverage in Bretton Woods. Could you speak to that?

[Jeff Snyder]

The fact that there was 12 million soldiers and aircraft carriers and all sorts of other stuff spaced all over the world, that gave the Americans quite a bit of leverage, too. But why didn't the Soviets have much more leverage than the Americans did? And that's another question that gets along to the politics of Bretton Wood exchange or Bretton woods and the gold exchange standard that came out of it. But, yeah, the essential problem facing John Maynard Keynes and Harry Dexter White at Bretton woods in 44 was, we've got gold in the US we had gold in France, but a lot of it was hidden away because they wanted to keep it out of German hands. Some of it ended up in Britain, some of it ended up who knows where, Switzerland, wherever else. How do we operate a global monetary standard where gold is not evenly distributed? And the answer was, well, let's have a paper currency standard. Let's have the US Dollar be the denomination and paper currency can flow, but we'll tie it to gold and this massive national gold reserve that the Americans have. So it can be like gold is flowing because the US did not want to give up the gold reserves, but yet realized that we have to do something. We have to have a monetary standard that works throughout the rest of the world. If we're not going to give up the gold, then why not circulate our paper currency tied to gold? Didn't seem like a good idea. But even John Maynard Keynes said, this is probably not going to work. We need probably an international currency, because, as Robert Triffin identified years later, there's this national tendency, there's natural contradiction between a international currency system being run by a national currency tied to national reserves. That's never going to work. And it didn't.

[Robert Breedlove]

So was the infamous exorbitant privilege. Was this a premeditated aspect of Bretton Woods? Was the US trying to secure this advantage for itself?

[Jeff Snyder]

In some ways, yeah. But a lot of ways it was just, again, expedience. It's how do we solve problems that are kind of intractable? How do we do that within the parameters of 1944? For example, one of the parameters that actually came back to bite them in the ass, so to speak, was neither Keynes, nor Harry Dexter White nor the Soviet delegation or any of the other delegations foresaw the post war economy for what it came to be, which was a highly globalized, trade centered economy that linked together a lot of countries and economies that previously had been completely totally separated. And the only way that could happen is if you have a true international reserve currency system. So there was always, we talked about before, demand for currency versus supply. Well, the demand for currency went way, way, way up after the World War II for legitimate economic reasons. First of all, rebuilding Europe and Japan. Secondly, economic growth and globalization. This first real wave of modern globalization that started out in the late 40s and early 50s demanded a hell of a lot of US dollar currency resources to get it done. That was always that natural tension between the needs for global currency and the fact that it was backed by only American reserves of gold.

[Robert Breedlove]

I find it kind of ironic that we have elasticity is such a vital instrument to both warfare and rebuilding.

[Jeff Snyder]

It's. Well then the question is, you know, I think the issue most people have with elasticity is that it tends to go too far at times, right? That's when you get into speculative bubbles and things like that. And the answer, you know, most people say, well, if we get into a speculative bubble, then the answer is just to slam the damn thing shut and go back all the way in the other direction. The pendulum must swing to the point where we have no elasticity. And I think that's a mistake. And as much as it is a mistake, when you argue for elasticity, a lot of people, especially central bankers, will argue that there's never too much elasticity. I think that's making the wrong mistake in the other direction. We identify that elasticity is sort of a unicorn, let's put it that way, where it's very hard to identify and it's very hard to contain. But what is our priorities here? I think the priorities, especially in the early post war era, were we need currency. Otherwise if we don't rebuild Europe, what's going to happen? It'll be World War three. Because that won't be a good situation. Globalization in the 50s and 60s was a very good thing. It meant economic growth and prosperity through much of the rest of the world. And if it required a good bit of currency to accomplish, then that was probably a good thing too.

[Robert Breedlove]

Right? Okay, that's interesting. Yeah, I appreciate the nuance you're bringing to this. That does seem a bit asinine though. You can never have too much elasticity. I mean, isn't that what hyperinflation is?

[Jeff Snyder]

Oh yes, absolutely.

[Robert Breedlove]

Too much elasticity.

[Jeff Snyder]

But the argument that central bankers and Keynesian economists would say is that no, those things don't really happen, especially with a modern central bank model. And it is completely stupid. It's really, you're, you're really playing with fire here. Because first of all, you don't really know much about the currency system to begin with. And if you don't know much about the currency system, you don't know where the limits are.

[Robert Breedlove]

Right, right.

[Jeff Snyder]

You don't know, you don't even believe there are limits, then you're going to.

[Robert Breedlove]

Go playing with fire. Yeah, absolutely. For sure. Okay, so then we have Bretton Woods. The dollar is pegged gold. Everything else is pegged to the dollar. But we've also now triggered Triffin's. Yeah, I guess this is technically a trilemma, but we often call it a dilemma. But it's, there's three aspects to it, right?

[Jeff Snyder]

Yeah, well, I mean, I think he called it a paradox and I think that was probably paradox.

[Robert Breedlove]

Okay.

[Jeff Snyder]

Yeah, well, Triffin's dilemma, Triffin's Paradox, same thing. Which is essentially that the Bretton woods system under, did not appreciate and understated all of these factors. So that really, it didn't last very long.

[Robert Breedlove]

Right.

[Jeff Snyder]

If you think about it, the gold started to flow outside of the United States in the late 50s, actually before that, but in really serious fashion in 58 and 59 and 60, which led to the creation of the London gold pool in November 1961, which was essentially a default on the Bretton woods arrangement, which basically said there's so much currency outside the United States, too much of it is finding it's being converted into, especially through France, too much of it is being converted into U.S. gold reserves. And golds are starting to flow outside the US which means we now have less and less backing to this global reserve currency. And it just becomes a self feeding phenomenon.

[Robert Breedlove]

Gotcha.

[Jeff Snyder]

But the problem was, and where I get into all this is that nobody seemed to understand where this currency outside the United States was actually coming from. And it's not where most people think and contemporarily authorities thought it was. It's just simple balance of payments issue. We started importing more than we exported, which meant we were exporting dollars around the rest of the world. That wasn't really the case. We have this Eurodollar system that started to spring up sometime in the 50s. There's even references to something called a continental dollar earlier in the 50s. So there was already these dollar supplies outside the US in the 1950s as this demand for global reserve went up, as this natural tension that Robert Triffin identified started to become a problem, there was this Eurodollar system already starting to grease the wheels in other ways.

[Robert Breedlove]

Gotcha. Okay, so a couple things. One, could you please give my audience an explanation of Triffin's Paradox in a NutShell? And then two, we have the dollar's a derivative of gold at this point. And now what we start to see emerge outside of the US Is a derivative system of the dollar, which we're calling the Euro dollars.

[Jeff Snyder]

It's great, right?

[Robert Breedlove]

A derivative squared, if you will. Yep.

[Jeff Snyder]

It's currency squared, Right. It's actually currency cubed because we're two steps removed from actual money, right?

[Robert Breedlove]

That's right, yeah. All right.

[Jeff Snyder]

So, yeah. Okay. Triffin's dilemma is essentially what you need currency. You need an international reserve currency. Now, why do you need an international reserve currency is because of what we said. It's the currency that intermediates between different countries and different systems that they're able to exchange with each other without having to do so directly in their own currency or their own ways. Because if you're importing goods in Japan from Sweden, you don't have any kroner.

[Robert Breedlove]

You'Re not going to get standard, right?

[Jeff Snyder]

Yes. So it's much easier to intermediate through a third currency that's available in both Japan and Sweden, and that's the US Dollar. But in order for that to work, you have to have dollars available and plentiful everywhere. So that's where elasticity really becomes important. So you have to have dollars available for everywhere. But under the Bretton woods system, more that we have dollars available for everywhere, the more likely some of those dollars are going to be repatriated in the United States through France and converted into US Gold reserves. So the French started taking gold outside the United States, redeeming the currency for gold, which then drained the US Reserves, supposedly backing this international standard, which then endangered the international standard, which causes all sorts of problems. So what Robert Triffin said was, you can't have a national currency backed by national reserves be an international currency.

[Robert Breedlove]

Got it? Okay. So there's three legs to it, right? You pick two of three as a global reserve currency, independent monetary policy and balance of payments. Are those the three?

[Jeff Snyder]

Yeah, fixed exchange.

[Robert Breedlove]

Fixed exchange. Okay.

[Jeff Snyder]

That's the idea. That was the idea. Fixed exchange. That would allow the system to moderate in balances, especially merchandise balance of payments and balances and things like that, because quite naturally, we're not talking about the US Dollar anymore, but say the Italian lira. The Italians, they came out of World War II in really rough shape and they ran balance of payments deficits for a very long time. And what ended up happening was rather than the Bretton woods system forcing the Italians to come up and pay up for their accumulated deficits and their accumulated currency deficits, they were intermediating through the Eurodollar system, borrowing in Eurodollars to offset their balance of payments issue. So in all, we're talking about the early 1960s. The Eurodollar system is already subverting the Bretton woods system and allowing another level of intermediation between national systems.

[Robert Breedlove]

So is this kind. I mean, one of the things that dawned on me listening to the Eurodollar University series, it seems like it's kind of like market forces working around the legislated Bretton Wood standard. Is that sort of what is happening here?

[Jeff Snyder]

Yeah, and there was all sorts of regulatory creeks and cracks and crevices that started. I mean, Regulation Q is a big one. Regulation Q was a depression era regulation which the American government said, we don't want banks paying more than what we say for a deposit. It was a really ridiculous, stupid idea. But whatever that was, the regulation that banks could not pay more for deposits, well, you go outside the United States into this offshore US dollar world, there's no regulation, which means that we can pay whatever we want for deposits. And so there was always this interest rate differential that favored this offshore system to begin with, which meant that supplies of dollars could be created outside the United States because there was this regulatory dark space.

[Robert Breedlove]

Right, interesting.

[Jeff Snyder]

Let's be clear here. When we're talking about Eurodollar, the term Eurodollar means something very specific. It doesn't have anything to do with the European common currency, which didn't come about until the late 1990s. The term euro simply means offshore. Offshore of the US it's not just offshore of the US it's offshore of everywhere. And that's, you know, you get banks in the Cayman Islands. You go to the Cayman Islands. As my podcast co host Emil Kalinowski is in the Cayman Islands. There are no banks there. They're just brass plates. They're just offices with lawyers and accountants. You can set up a quote unquote bank in these offshore places like the Cayman Islands or London or Montreal or any of these other places that allow banks basically to be unregulated so long as they're doing business with people outside of those countries. It was really the secret behind the Eurodollar system's early days was that in London, as the pound system started to fall apart and the British economy started to really fall apart, they wanted to continue their banking dominance that the English had been dominant in banking since the 18th century. And the only way they could do it was if they captured some part of this growing US dollar centered system. So they said if you set up a bank in the City of London, the City of London, which is a special part of London, if you set a bank there, we won't regulate you as long as you don't do any business with people inside the uk. So as long as you're doing business with people around the world, we don't give a shit what you do. And that's where really the real basis of the Eurodollar system started. From these offshore regulatory blank spots where banks could do whatever they needed to do. And to the point you're making, that allowed banks the good side of this. That allowed the banking system to essentially very neatly and elegantly solve Triffin's Dilemma. Because it was no longer a national currency tied to national reserves. It's a derivative of a derivative that's tied only to the capacities of banking, which, going back to something else we talked about earlier before, puts banks in a really good spot, which eventually they could really take advantage of because now they're the ones printing the currency, they're the ones in charge of monetary flow and redistribution, which believe me, they loved it. In fact, there's a guy by the name of Paul Einsig who was in the 1950s, 1960s, a well known economist and journalist and did all these things. And he said, look, I stumbled upon the Eurodollar system in the late 50s and the bankers I talked to begged me not to write about it because they were making so much money, nobody knew what they were doing and all this stuff, they didn't want anybody to know what was going on. And that was the early history of the system, was that it grew and grew and grew, solved this problem elegantly also allowed banks to a real big leg up into this growing international system.

[Robert Breedlove]

Fascinating. I think you said in one of your pieces that this central bank model was forcefully decentralized in a way through the emergence of the Eurodollar system, taking us from a lender of last resort to a market of last resort. But it's all very opaque. I think even today we have ideas about maybe how big it is, but we don't really know.

[Jeff Snyder]

And that's part of the problem too, is that, look, central banks essentially took the position. It's called benign neglect. Look, the Bretton woods system is falling apart. We don't really know how to solve it. There's no real pathway to solve it. But the banking system is doing it for us. So why don't we just look the other way and let the banks solve it for us and we. Plausible deniability. We don't know what's going on out there. There's a bunch of. It's, you know, it's banks in London. That's not our problem. So that's where it all began, where, when they took their eyes off the monetary ball in a lot of ways, they were forced to. Because banks, once they were set free to do all this stuff, they started evolving in all sorts of these modern monetary formats that central bankers and economists couldn't even keep up with. By the early 70s, they're like, we don't even know how to do money anymore. We can't. So let's try to do something else. Let's change the entire model of central banking, which is what happened that's so interesting.

[Robert Breedlove]

This formerly contained ecosystem just spilled out of its container and the central bankers had no choice other than to let it do its thing because they couldn't keep it together without it. It was solving Triven's dilemma for them.

[Jeff Snyder]

Exactly. And of course, that was the good aspect of it. The bad aspect of it is when you again, as we talked about elasticity, run amok. That was the great inflation. And then, then you had deflate. And some people who were aware of this, people like Robert Roosa and Robert Solomon, who's the guy I really expect at the time, kept saying, look, this Eurodollar thing is going to come back to bite us. We need to understand it. And central bankers, especially in the 70s, were like, it's not our job. This is banks in London, this is banks in the Caymans. We're a domestic bank regulator, not even a money regulator. We're a domestic bank regulator. We don't do money anymore. So whatever they're doing in London, even though it's called US dollars, not our.

[Robert Breedlove]

Job, so it was nobody's job. And therefore this thing got to grow.

[Jeff Snyder]

Yeah, the bank of England and the regulators in England were saying, that's not our job either because we let these banks set up. They're not doing anything with local customers, they're not doing anything with UK citizens. So, yeah, they're operating in London, but all their business is outside, so it's not our job either. Nobody's job. And that's why the term Euro dollar offshore means literally, offshore from everywhere.