In particular, the work of the economic historians such as Mr Eichengreen and Peter Temin has recently stressed the importance of the malfunctioning of the gold standard currency system as the cause of the Depression, as well as its severity.
From the mid-19th century most countries pegged their currencies to a fixed value of gold, an arrangement that became known as the “gold standard”. This system worked whilst countries helped each other with loans to solve periodic balance-of-payments crises (and while gold discoveries made for gentle price-level trends) but World War One disrupted this system. The result was that many countries found themselves with currencies fixed at an inappropriate rate of exchange to those of other countries. While France and America initially gained in the 1920s from holding their currencies at too low a value, countries like Britain and Germany suffered from recurrent balance-of-payments problems as the result their overvalued currencies.
Bankers fear inequality
Financial circles are taking note of how economic inequity, social exclusion and other injustices can no longer be tolerated or covered up as in the past. While bankers don’t have solutions for this, it is telling that in meetings where the principal concern is how to make more money, the worry about inequality becoming a significant source of instability now appears with much more urgency than in any of the meetings in preceding years.
It doesn’t matter if this is because bankers are becoming more socially conscious or if they fear social turmoil is bad for business. What’s interesting is that a topic that has rarely been a part of these conversations is now as frequently mentioned by the world’s financiers as the possible default of the U.S. government.
JPMorgan’s Loss is Corporate Law Firms’ Gain
Other big banks have been plagued by huge legal bills in recent years. Since the financial crisis, Bank of America has doled out more than $20 billion in legal costs, according to government filings.
Not Raising the Debt Ceiling: A Crisis, If We’re Lucky, a Historical Calamity If We’re Not
Now let’s translate that into English. All sorts of financial institutions fund their day-to-day operations with ultra-short-term borrowing. Repurchase agreements (or “repo”) are the most common type. Here’s how it works. A bank “sells” something for cash, but agrees to buy it back at the end of the day — hence, repurchase — for a little more than it got. So, for example, say a bank sells a Treasury bond for 95 cents on the dollar, and buys it back for 96 cents at the end of the day. Again, notice the difference between what it gets and what it pays for the collateral. That’s the interest rate on what is really a secured loan. Okay, but what does this have to do with the debt ceiling? Well, the repo market isn’t set up to tell if a Treasury bond has defaulted