1
00:00:02,720 --> 00:00:13,360
Speaker 1: Bloomberg Audio Studios, podcasts, radio news Tracy, Are we still

2
00:00:13,400 --> 00:00:16,000
Speaker 1: doing this? It seems like it Actually what is this

3
00:00:16,120 --> 00:00:19,119
Speaker 1: supposed to be? Is this a Cold war bunker or

4
00:00:19,160 --> 00:00:19,800
Speaker 1: something like that.

5
00:00:20,640 --> 00:00:23,520
Speaker 2: That's a good question. Maybe it's a vault or the

6
00:00:23,760 --> 00:00:26,720
Speaker 2: vienna sewage system like in the Third Band. Do you

7
00:00:26,800 --> 00:00:28,040
Speaker 2: remember that that was a good movie?

8
00:00:28,080 --> 00:00:31,440
Speaker 1: I should see that, Okay, But in this episode we've

9
00:00:31,480 --> 00:00:34,519
Speaker 1: moved on from the immediate post war period. We are

10
00:00:34,520 --> 00:00:37,560
Speaker 1: now in the nineteen sixties, a turbulent time for society

11
00:00:37,600 --> 00:00:40,880
Speaker 1: and politics, but also for euro dollars, which are the

12
00:00:40,920 --> 00:00:42,280
Speaker 1: subject of our special series.

13
00:00:42,520 --> 00:00:42,720
Speaker 3: Yep.

14
00:00:42,880 --> 00:00:46,479
Speaker 2: This is the second installment of our three part history

15
00:00:46,560 --> 00:00:50,120
Speaker 2: of euro dollars. If you haven't listened to our first episode,

16
00:00:50,159 --> 00:00:52,960
Speaker 2: you should definitely go back and find it. We have

17
00:00:53,040 --> 00:00:56,720
Speaker 2: been tracing the origins of this very particular and special

18
00:00:56,760 --> 00:00:59,800
Speaker 2: form of money to better understand how it came to

19
00:00:59,800 --> 00:01:03,320
Speaker 2: be and what it actually does. And our first episode

20
00:01:03,320 --> 00:01:06,920
Speaker 2: looked at the creation of euro dollars and they're perhaps

21
00:01:07,040 --> 00:01:09,160
Speaker 2: unexpected communist connections.

22
00:01:09,319 --> 00:01:10,920
Speaker 1: Yep, that's right. And now we're going to turn the

23
00:01:10,959 --> 00:01:14,600
Speaker 1: page new decade, a new chapter in euro dollar's existence.

24
00:01:14,800 --> 00:01:18,400
Speaker 2: There's something else new that happens right around this time.

25
00:01:18,640 --> 00:01:22,720
Speaker 2: So dollar swap lines get created. Do you remember those, Joe.

26
00:01:23,000 --> 00:01:26,119
Speaker 1: I've read about them in that Adam Two's book crashed,

27
00:01:26,319 --> 00:01:28,759
Speaker 1: But yes, they were big in two thousand and eight,

28
00:01:28,840 --> 00:01:32,080
Speaker 1: then again in twenty twenty, also the Eurozone crisis. They're

29
00:01:32,120 --> 00:01:34,720
Speaker 1: basically something that no one ever talks or thinks about

30
00:01:34,760 --> 00:01:35,760
Speaker 1: outside of a crisis.

31
00:01:35,840 --> 00:01:39,000
Speaker 2: Yeah, I think that's right. So they are dollar borrowing

32
00:01:39,040 --> 00:01:42,720
Speaker 2: lines for other central banks. And I've seen swap lines

33
00:01:42,800 --> 00:01:47,400
Speaker 2: described as the international lender of last resort. They tend to,

34
00:01:47,760 --> 00:01:51,640
Speaker 2: as you mentioned, get tapped during big emergencies. That's when

35
00:01:51,680 --> 00:01:56,240
Speaker 2: we hear about them. But swap lines basically allow central

36
00:01:56,240 --> 00:01:59,480
Speaker 2: banks to exchange currencies, and in this case it is

37
00:01:59,560 --> 00:02:00,760
Speaker 2: all about getting dollars.

38
00:02:01,160 --> 00:02:04,080
Speaker 1: And as a reminder, our storytellers for these episodes are

39
00:02:04,160 --> 00:02:05,840
Speaker 1: lovemanand and Josh Younger.

40
00:02:06,160 --> 00:02:09,320
Speaker 3: I'm levmanand I'm a law professor at Columbia Law School,

41
00:02:09,320 --> 00:02:11,760
Speaker 3: where I study money and banking and the history of

42
00:02:11,800 --> 00:02:12,440
Speaker 3: central banking.

43
00:02:13,080 --> 00:02:15,080
Speaker 4: I'm Josh Younger. I'm a policy advisor at the Federal

44
00:02:15,080 --> 00:02:17,800
Speaker 4: Reserve Bank of New York and the views I am

45
00:02:17,840 --> 00:02:20,200
Speaker 4: going to express are my own and not necessarily those

46
00:02:20,200 --> 00:02:21,680
Speaker 4: of the Federal Reserve Bank of New York or the

47
00:02:21,680 --> 00:02:22,680
Speaker 4: Federal Reserve system.

48
00:02:23,000 --> 00:02:25,200
Speaker 2: When we left off, we were at the end of

49
00:02:25,240 --> 00:02:28,520
Speaker 2: the nineteen fifties, the euro dollar market was just a

50
00:02:28,600 --> 00:02:32,760
Speaker 2: billion dollars or so. But it's grown from pretty much nothing,

51
00:02:32,960 --> 00:02:37,040
Speaker 2: and so it's starting to attract more attention from policymakers

52
00:02:37,040 --> 00:02:41,080
Speaker 2: at central banks. And now as we enter the nineteen sixties,

53
00:02:41,360 --> 00:02:44,760
Speaker 2: euro dollars are even going to hit mainstream politics.

54
00:02:45,080 --> 00:02:45,880
Speaker 1: Let's take a listen.

55
00:03:20,320 --> 00:03:22,520
Speaker 4: So now it's the fall of nineteen sixty, Kenny's run

56
00:03:22,639 --> 00:03:26,079
Speaker 4: for president, a very tight race against Vice President Richard Nixon,

57
00:03:26,480 --> 00:03:29,280
Speaker 4: and in the background, the monetary system is in crisis

58
00:03:29,480 --> 00:03:32,680
Speaker 4: and it's really showing signs not just to fatigue, but

59
00:03:32,760 --> 00:03:36,600
Speaker 4: of potential collapse. And so to understand why that could happen, like,

60
00:03:36,600 --> 00:03:39,400
Speaker 4: what does that even mean, especially in the context of

61
00:03:39,440 --> 00:03:41,360
Speaker 4: the nineteen sixties, we kind of have to go back

62
00:03:41,400 --> 00:03:44,320
Speaker 4: to the war. So it's nineteen forty four now, and

63
00:03:44,520 --> 00:03:47,480
Speaker 4: forty four countries are convening in Bretton Woods, New Hampshire.

64
00:03:48,160 --> 00:03:50,680
Speaker 4: Small town, big hotel. They took up most of it.

65
00:03:50,680 --> 00:03:53,960
Speaker 4: It's about seven hundred people. And the whole premise of

66
00:03:54,000 --> 00:03:58,480
Speaker 4: this is to find a way to restructure the global

67
00:03:58,520 --> 00:04:01,400
Speaker 4: economic and monetary system after the war's officer. It's still

68
00:04:01,400 --> 00:04:03,600
Speaker 4: a presumptuous right, the wars not ever yet, but they're

69
00:04:03,600 --> 00:04:06,360
Speaker 4: still planning ahead. And so you know, we hear a

70
00:04:06,360 --> 00:04:10,120
Speaker 4: lot about Yelton, Potsdam and the big conferences about the

71
00:04:10,160 --> 00:04:12,680
Speaker 4: partition of Europe and Berlin and so forth, But this

72
00:04:12,760 --> 00:04:16,880
Speaker 4: is really among the most important of these postwar planning conferences.

73
00:04:16,920 --> 00:04:19,880
Speaker 4: It's the brainchild of Harry Dexter White, who most people

74
00:04:19,920 --> 00:04:22,520
Speaker 4: haven't heard of as well. He's been the Treasury since

75
00:04:22,520 --> 00:04:26,160
Speaker 4: the mid thirties. He's a PhD economist, doesn't really like

76
00:04:26,200 --> 00:04:29,719
Speaker 4: what ends up for teaching, and Milton Friedman's professor recruits

77
00:04:29,800 --> 00:04:31,400
Speaker 4: him to go to the Treasury to work from Morgan

78
00:04:31,400 --> 00:04:35,200
Speaker 4: thou who's FDRs very long serving Treasury Secretary. I think

79
00:04:35,240 --> 00:04:38,680
Speaker 4: he's the second longest serving after Gallaton, who is Jefferson's secretary.

80
00:04:38,800 --> 00:04:40,360
Speaker 4: So he has the job for like twelve years, which

81
00:04:40,360 --> 00:04:44,840
Speaker 4: is a long time to be a Treasury secretary. And

82
00:04:45,200 --> 00:04:47,920
Speaker 4: there's really two competing visions going into this conference. The

83
00:04:47,960 --> 00:04:52,880
Speaker 4: first is the American vision, which is a dollar based

84
00:04:52,920 --> 00:04:57,200
Speaker 4: global monetary order in which gold forms the foundation. So

85
00:04:57,240 --> 00:05:00,720
Speaker 4: your dollars are convertible into gold. All and currencies, at

86
00:05:00,760 --> 00:05:04,680
Speaker 4: least among the victors are fixed in their exchange rates,

87
00:05:04,680 --> 00:05:08,200
Speaker 4: so pegged to the dollar, and so everything kind of

88
00:05:08,240 --> 00:05:10,359
Speaker 4: revolves around the US dollar and the gold stock that

89
00:05:10,400 --> 00:05:12,680
Speaker 4: the US has accumulated over the course of the war.

90
00:05:13,200 --> 00:05:15,120
Speaker 4: The US is two thirds of global gold reserves at

91
00:05:15,120 --> 00:05:17,440
Speaker 4: this point, so it's monetary gold reserve. So they have

92
00:05:17,480 --> 00:05:20,360
Speaker 4: a lot of let's say, leverage going into this conference,

93
00:05:20,400 --> 00:05:23,000
Speaker 4: and they know it. And that's been a dream of

94
00:05:23,040 --> 00:05:25,560
Speaker 4: White since basically joined the Treasury. He's been pushing for

95
00:05:25,720 --> 00:05:28,440
Speaker 4: a global dollar system. He really wants the dollar to

96
00:05:28,520 --> 00:05:30,919
Speaker 4: retake its prior position. Remember in the twenties, the dollar

97
00:05:31,000 --> 00:05:33,520
Speaker 4: was the global reserve currency, was the currency of trade.

98
00:05:33,760 --> 00:05:36,279
Speaker 4: It lost that status over the thirties on a series

99
00:05:36,279 --> 00:05:37,960
Speaker 4: of runs on the dollars. So he's very familiar with

100
00:05:37,960 --> 00:05:41,159
Speaker 4: what happens when this breaks down, and he wants to

101
00:05:41,160 --> 00:05:43,400
Speaker 4: bring the dollar back. This is the second bite at

102
00:05:43,400 --> 00:05:47,280
Speaker 4: the apple, and so he wants the dollar to be

103
00:05:47,320 --> 00:05:48,800
Speaker 4: part of global trade. He wants to be the unit

104
00:05:48,839 --> 00:05:51,200
Speaker 4: of account. He actually wants all the invaded territories to

105
00:05:51,279 --> 00:05:53,400
Speaker 4: use the dollar. So he wants invasion currency to be

106
00:05:53,440 --> 00:05:56,240
Speaker 4: printed by the Treasury they called yellow seal dollars, So

107
00:05:56,279 --> 00:05:59,000
Speaker 4: he wants dollars everywhere in cleaning North Africa, Germany, et cetera,

108
00:05:59,440 --> 00:06:02,520
Speaker 4: and actually do that in some places. And the British,

109
00:06:02,560 --> 00:06:04,240
Speaker 4: on the other hand, are very aware of this, in

110
00:06:04,320 --> 00:06:06,920
Speaker 4: large part because they don't have any gold and so

111
00:06:07,000 --> 00:06:09,960
Speaker 4: they have no leverage. But they're worried that the US

112
00:06:10,000 --> 00:06:11,920
Speaker 4: will come out of this conference with way too much

113
00:06:11,920 --> 00:06:15,400
Speaker 4: global power, especially relative to the European allies, and John

114
00:06:15,440 --> 00:06:17,880
Speaker 4: Mayner Kain's is their champion. He comes up with an

115
00:06:17,920 --> 00:06:20,520
Speaker 4: alternative arrange because a bank ORP, which is a contraction

116
00:06:20,600 --> 00:06:23,920
Speaker 4: of bunkin or in French. I promised earlier I wouldn't

117
00:06:23,960 --> 00:06:25,960
Speaker 4: do French words, so I apologized with the accent, but

118
00:06:26,040 --> 00:06:28,200
Speaker 4: you know it's bank gold. Which is the idea is

119
00:06:28,240 --> 00:06:32,200
Speaker 4: there is no global currency issued by one country. There's

120
00:06:32,240 --> 00:06:37,840
Speaker 4: only a transnational credit organization kind of like a bank,

121
00:06:37,960 --> 00:06:40,640
Speaker 4: where international trade happens on the books of that organization.

122
00:06:40,720 --> 00:06:43,599
Speaker 4: So it's something like a transnational central bank, and it

123
00:06:43,680 --> 00:06:48,080
Speaker 4: involves everyone giving up their sovereignty to some extent to

124
00:06:48,320 --> 00:06:50,880
Speaker 4: facilitate global trade in what he considered sort of a

125
00:06:50,880 --> 00:06:55,120
Speaker 4: fair and less arbitrary way. Meanwhile, White is very aware

126
00:06:55,160 --> 00:06:58,160
Speaker 4: of the potential sacrifice of sovereignty to use the dollars

127
00:06:58,200 --> 00:07:00,680
Speaker 4: of global reserve currency in the global unit of trade.

128
00:07:00,720 --> 00:07:02,840
Speaker 4: It's just he would prefer everyone else to sacrifice their

129
00:07:02,880 --> 00:07:05,800
Speaker 4: sovereignty rather than the US, and so in the end,

130
00:07:05,880 --> 00:07:09,359
Speaker 4: basically the US wins, and they win because Lionel Robbins

131
00:07:09,400 --> 00:07:11,600
Speaker 4: is one of the UK delegation. This is in Ben

132
00:07:11,680 --> 00:07:14,120
Speaker 4: Steele's book. He basically says, we needed the cash right,

133
00:07:14,160 --> 00:07:16,720
Speaker 4: so they don't have a lot of leverage. This is

134
00:07:16,720 --> 00:07:18,120
Speaker 4: a power grab by the US.

135
00:07:18,520 --> 00:07:22,000
Speaker 3: The US is by far the biggest economy in the world,

136
00:07:22,480 --> 00:07:25,920
Speaker 3: it has the prevailing military in the world, and there's

137
00:07:25,960 --> 00:07:30,840
Speaker 3: an opportunity here for real internationalism and cooperation around global

138
00:07:30,880 --> 00:07:34,920
Speaker 3: trade and the monetary system that facilitates it, and the

139
00:07:35,080 --> 00:07:41,440
Speaker 3: US rejects that and essentially imposes an alternative system that

140
00:07:41,800 --> 00:07:44,480
Speaker 3: puts the US much more in the driver's seat and

141
00:07:44,600 --> 00:07:47,080
Speaker 3: everybody else in a more subordinate position.

142
00:07:47,720 --> 00:07:49,640
Speaker 4: It's also there's a lot of very human elgiment this,

143
00:07:49,760 --> 00:07:51,400
Speaker 4: Like by the end of the Brettonwoods conference it's three

144
00:07:51,400 --> 00:07:53,120
Speaker 4: weeks long. No one thought it would go that long.

145
00:07:53,560 --> 00:07:56,200
Speaker 4: They're tired they're hungover. They went through a lot of

146
00:07:56,240 --> 00:07:59,560
Speaker 4: liquor at this conference. There's no food left at the hotel,

147
00:07:59,760 --> 00:08:01,960
Speaker 4: and so like everyone just kind of wants to go home. Now,

148
00:08:01,960 --> 00:08:03,920
Speaker 4: that's not a great reason to sign the world over

149
00:08:03,960 --> 00:08:07,360
Speaker 4: to the US as a dollar centric universe, but there

150
00:08:07,400 --> 00:08:09,240
Speaker 4: really is like a human elements how all of this

151
00:08:09,280 --> 00:08:10,840
Speaker 4: goes down. That's kind of one of the themes through

152
00:08:10,840 --> 00:08:11,679
Speaker 4: this whole story.

153
00:08:12,360 --> 00:08:15,600
Speaker 3: And multilateralism is hard, and there are a lot of

154
00:08:15,640 --> 00:08:20,440
Speaker 3: frictions to get countries to cooperate on really really high

155
00:08:20,440 --> 00:08:25,480
Speaker 3: stakes issues for their domestic economies. And we'll see in

156
00:08:25,520 --> 00:08:29,520
Speaker 3: the course of this story how cooperation often breaks down

157
00:08:29,680 --> 00:08:35,679
Speaker 3: and shortcuts prevail over longer term, higher cost solutions to problems.

158
00:08:36,040 --> 00:08:38,360
Speaker 4: So the Brentwood system is one in which for thirty

159
00:08:38,400 --> 00:08:39,840
Speaker 4: five dollars you can have an ounce of gold from

160
00:08:39,880 --> 00:08:42,520
Speaker 4: the treasury and specifically foreign central banks. You have to

161
00:08:42,520 --> 00:08:44,360
Speaker 4: be an official institution that you know, I couldn't get

162
00:08:44,400 --> 00:08:47,200
Speaker 4: thirty five dollars for gold, but the Bunk de France could.

163
00:08:47,679 --> 00:08:49,800
Speaker 4: And so the US isn't a sense of the world's

164
00:08:49,800 --> 00:08:53,360
Speaker 4: banker because they're issuing dollars and they can in principle

165
00:08:53,400 --> 00:08:55,480
Speaker 4: issue more dollars than they have gold. So it's not

166
00:08:55,520 --> 00:08:59,240
Speaker 4: a fully reserved system. There's leverage embedded in the international system,

167
00:08:59,720 --> 00:09:03,079
Speaker 4: and so that happens pretty quickly because global trade expands

168
00:09:03,800 --> 00:09:07,839
Speaker 4: and the US monetary gold stock is not increasing. Actually

169
00:09:07,880 --> 00:09:10,160
Speaker 4: most of the gold production is in Russia, so they're

170
00:09:10,160 --> 00:09:13,360
Speaker 4: not giving it over so easy, and so over time

171
00:09:13,920 --> 00:09:17,559
Speaker 4: the world needs more and more dollars and the value

172
00:09:17,600 --> 00:09:20,319
Speaker 4: of those dollars implicitly starts to decline. Now, what does

173
00:09:20,320 --> 00:09:22,720
Speaker 4: that mean in the context of a peg from the treasury.

174
00:09:22,720 --> 00:09:24,840
Speaker 4: If the treasure will always buy your dollars for renounce

175
00:09:24,840 --> 00:09:26,640
Speaker 4: of gold for thirty five dollars, what does it mean

176
00:09:26,640 --> 00:09:28,120
Speaker 4: for the value the dollar to go down? Well, that's

177
00:09:28,160 --> 00:09:31,000
Speaker 4: not the only gold market in town, and soon on

178
00:09:31,080 --> 00:09:34,160
Speaker 4: the continent, and in London at the Metal exchange, it

179
00:09:34,200 --> 00:09:36,680
Speaker 4: costs a little more than thirty five dollars to buy

180
00:09:36,880 --> 00:09:39,920
Speaker 4: an ounce of gold, and that's really consequences of non

181
00:09:39,960 --> 00:09:43,240
Speaker 4: monetary demand. So you have some speculators. A huge fraction

182
00:09:43,280 --> 00:09:44,960
Speaker 4: of gold in the world is held up in jewelry

183
00:09:45,000 --> 00:09:47,200
Speaker 4: like that's the real thing. So you know, there's reasons

184
00:09:47,200 --> 00:09:49,240
Speaker 4: you would want gold other than to back your currency.

185
00:09:49,320 --> 00:09:51,120
Speaker 4: I think it's fair to say, and there are more

186
00:09:51,160 --> 00:09:52,880
Speaker 4: and more of those reasons and more and more demand

187
00:09:52,920 --> 00:09:56,600
Speaker 4: for those purposes over time. And so this introduces a

188
00:09:56,640 --> 00:10:00,199
Speaker 4: fundamental instability into the breton Wood system, because if a

189
00:10:00,200 --> 00:10:02,880
Speaker 4: foreign central bank is exporting to the US, the US

190
00:10:02,920 --> 00:10:04,920
Speaker 4: is running a balance of payments deficit. That means they're

191
00:10:04,920 --> 00:10:08,480
Speaker 4: importing more than they are exporting. Dollars are piling up

192
00:10:08,600 --> 00:10:11,640
Speaker 4: in Europe. Those dollars can in principle be exchanged for

193
00:10:11,720 --> 00:10:13,840
Speaker 4: gold at thirty five dollars an ounce. That gold can

194
00:10:13,880 --> 00:10:15,960
Speaker 4: be sold for thirty five dollars and fifteen cents an

195
00:10:16,000 --> 00:10:18,960
Speaker 4: ounce in London, and sometimes much more than that. And

196
00:10:19,040 --> 00:10:22,160
Speaker 4: so slowly at first, then all at once, so to speak,

197
00:10:22,320 --> 00:10:25,440
Speaker 4: the US gold stock starts to decline at the same

198
00:10:25,480 --> 00:10:28,280
Speaker 4: time as their dollar liabilities are going up. So now

199
00:10:28,360 --> 00:10:30,840
Speaker 4: you owe more gold in principle to more people, but

200
00:10:30,920 --> 00:10:32,960
Speaker 4: you have less of it with which to pay them.

201
00:10:33,400 --> 00:10:35,720
Speaker 4: That's a bank run, or at least a slow motion

202
00:10:35,800 --> 00:10:38,600
Speaker 4: bank run, and so people get really worried that this

203
00:10:38,720 --> 00:10:41,040
Speaker 4: is going to just accelerate, and they need some way

204
00:10:41,559 --> 00:10:44,360
Speaker 4: essentially the staunch of the bleeding. So you know, you

205
00:10:44,440 --> 00:10:47,040
Speaker 4: have a couple of options, and I should say this

206
00:10:47,120 --> 00:10:49,360
Speaker 4: becomes an election issue in Kennedy Nixon. I mean it

207
00:10:49,360 --> 00:10:52,800
Speaker 4: comes up in the third debate. There's a big shock

208
00:10:52,840 --> 00:10:55,600
Speaker 4: to the price of gold in October of nineteen sixty,

209
00:10:55,640 --> 00:10:57,640
Speaker 4: where the price goes to forty dollars ounce, which is

210
00:10:57,720 --> 00:10:59,040
Speaker 4: kind of insane if you can buy it from the

211
00:10:59,080 --> 00:11:01,520
Speaker 4: treasury at thirty five. It kind of sticks there for

212
00:11:01,520 --> 00:11:04,360
Speaker 4: a little while, and so Nixon is out there saying, well,

213
00:11:04,400 --> 00:11:06,080
Speaker 4: Kennedy's going to blow up the dollar.

214
00:11:06,480 --> 00:11:07,480
Speaker 5: Mister Vice President.

215
00:11:07,600 --> 00:11:10,160
Speaker 6: In the past three years, there has been an exodus

216
00:11:10,160 --> 00:11:12,720
Speaker 6: of more than four billion dollars of gold from the

217
00:11:12,800 --> 00:11:16,760
Speaker 6: United States, apparently for two reasons, because exports have slumped

218
00:11:16,760 --> 00:11:20,360
Speaker 6: and having covered imports, and because of increased American investments abroad.

219
00:11:20,679 --> 00:11:22,560
Speaker 6: If you were a president, how would you go about

220
00:11:22,600 --> 00:11:26,240
Speaker 6: stopping this departure of gold from our shores? All, mister

221
00:11:26,280 --> 00:11:28,920
Speaker 6: Vrongfrand the first thing we have to do is to

222
00:11:28,960 --> 00:11:34,840
Speaker 6: continue to keep confidence abroad in the American dollar. That

223
00:11:35,000 --> 00:11:38,440
Speaker 6: means that we must continue to have a balanced budget

224
00:11:38,440 --> 00:11:41,880
Speaker 6: here at home in every possible circumstance that we can,

225
00:11:42,440 --> 00:11:46,280
Speaker 6: because the moment that we have loss of confidence in

226
00:11:46,320 --> 00:11:49,319
Speaker 6: our own physical policies at home, it results in gold

227
00:11:49,360 --> 00:11:50,000
Speaker 6: glowing up.

228
00:11:50,400 --> 00:11:52,920
Speaker 4: And he initially kind of brushes it off. He says, oh,

229
00:11:53,240 --> 00:11:55,800
Speaker 4: I guess sick Nickson thinks I can trade gold in London,

230
00:11:55,920 --> 00:11:58,560
Speaker 4: Like that's hilarious. And eventually this advice is like, you

231
00:11:58,600 --> 00:12:01,080
Speaker 4: have to actually address this. People are really worried that

232
00:12:01,240 --> 00:12:03,560
Speaker 4: your policies are going to lead to a collapse of

233
00:12:03,559 --> 00:12:05,440
Speaker 4: the dollar. And so he puts out a formal statement

234
00:12:05,480 --> 00:12:09,280
Speaker 4: as a candidate pledging his support for the dollar. So

235
00:12:10,120 --> 00:12:13,000
Speaker 4: this is really becoming an issue of national security, Like

236
00:12:13,040 --> 00:12:17,360
Speaker 4: people associate the dollar with the core of NATO in

237
00:12:17,400 --> 00:12:20,960
Speaker 4: the free world, and Eisenhower is pretty explicit on this point.

238
00:12:21,040 --> 00:12:23,840
Speaker 4: Kennedy's pretty explicit on this point. I mean, the collapse

239
00:12:23,880 --> 00:12:25,920
Speaker 4: of the dollar is like not an acceptable outcome because

240
00:12:25,920 --> 00:12:29,840
Speaker 4: it really reflects a collapse of the anti communist alliance

241
00:12:29,840 --> 00:12:31,800
Speaker 4: that's developed in the past ten years. So it's kind

242
00:12:31,800 --> 00:12:35,040
Speaker 4: of core to the US's sense of itself that the

243
00:12:35,080 --> 00:12:37,600
Speaker 4: world remain on a dollar standard, that the dollar remains strong.

244
00:12:38,200 --> 00:12:41,880
Speaker 3: Part of what's gone wrong here is Harry Dexter White,

245
00:12:42,679 --> 00:12:45,600
Speaker 3: in crafting this new system that puts the dollar at

246
00:12:45,600 --> 00:12:49,800
Speaker 3: the center, has given something up to everybody else, and

247
00:12:49,840 --> 00:12:54,040
Speaker 3: that's the peg of the dollar to gold at thirty

248
00:12:54,040 --> 00:12:59,800
Speaker 3: five dollars announced and the power that is given up

249
00:12:59,800 --> 00:13:02,280
Speaker 3: by the US to all those foreign central banks to

250
00:13:02,400 --> 00:13:07,000
Speaker 3: allow them to withdraw gold at that exchange rate. And

251
00:13:07,080 --> 00:13:10,319
Speaker 3: at the time that this is done, the US has

252
00:13:10,400 --> 00:13:15,280
Speaker 3: so much gold stock. But what has happened is we

253
00:13:15,440 --> 00:13:22,960
Speaker 3: have recreated nineteenth century conditions by essentially bringing back a

254
00:13:23,040 --> 00:13:26,559
Speaker 3: gold standard and the rigidity that goes with it and

255
00:13:26,679 --> 00:13:29,720
Speaker 3: the run ability on the currency that goes with it.

256
00:13:29,880 --> 00:13:33,360
Speaker 3: We're not used to the idea of running on the

257
00:13:33,400 --> 00:13:36,720
Speaker 3: currency in the United States today, but that was a

258
00:13:37,000 --> 00:13:43,600
Speaker 3: problem that countries experienced a lot when they had convertibility

259
00:13:43,640 --> 00:13:46,560
Speaker 3: to gold. And so we're in the post war world

260
00:13:46,600 --> 00:13:51,200
Speaker 3: here and we have brought back convertibility to gold, all

261
00:13:51,240 --> 00:13:53,280
Speaker 3: the risks that go with it, and the rigidity that

262
00:13:53,320 --> 00:13:56,800
Speaker 3: goes with it because we no longer have the ability

263
00:13:57,360 --> 00:14:00,920
Speaker 3: to control the elasticity of the money. So apply there's

264
00:14:01,040 --> 00:14:06,280
Speaker 3: this sort of bomb built into the system where if

265
00:14:06,320 --> 00:14:10,839
Speaker 3: everybody decides to redeem all at once, the money supply

266
00:14:10,920 --> 00:14:12,920
Speaker 3: is going to start contracting rapidly. They're going to have

267
00:14:12,920 --> 00:14:15,199
Speaker 3: a crisis of confidence. And so here we are in

268
00:14:15,280 --> 00:14:19,320
Speaker 3: nineteen sixty in some sense at the apex of US power,

269
00:14:19,920 --> 00:14:23,480
Speaker 3: confronting the possibility that we could be in nineteen thirty

270
00:14:23,520 --> 00:14:29,440
Speaker 3: two all over again with a series of withdrawals and

271
00:14:29,640 --> 00:14:33,480
Speaker 3: the US dollar breaking the peg, and that comes to

272
00:14:33,520 --> 00:14:37,080
Speaker 3: take on this great significance the idea that we won't

273
00:14:37,120 --> 00:14:39,920
Speaker 3: be able to maintain the peg. Of course, from an

274
00:14:39,960 --> 00:14:43,840
Speaker 3: optimal design perspective, you really want to be able to

275
00:14:43,960 --> 00:14:47,800
Speaker 3: adjust that peg. But you've said it's going to be

276
00:14:47,880 --> 00:14:51,000
Speaker 3: thirty five dollars. And now suddenly, in the Cold War world,

277
00:14:51,360 --> 00:14:55,680
Speaker 3: in global politics and even in domestic politics, this idea

278
00:14:55,800 --> 00:15:00,000
Speaker 3: of the dollar maintaining its value takes on this grit

279
00:15:00,560 --> 00:15:04,720
Speaker 3: sense of significance, and increasingly US policy makers are in

280
00:15:04,800 --> 00:15:20,360
Speaker 3: a bye.

281
00:15:21,240 --> 00:15:23,080
Speaker 4: So in a speech to the IMF in September of

282
00:15:23,160 --> 00:15:25,440
Speaker 4: nineteen sixty two, Kennedy is very clear on this point

283
00:15:25,480 --> 00:15:27,720
Speaker 4: that the dollar, the importance of the dollar in the

284
00:15:27,760 --> 00:15:30,520
Speaker 4: fight against communism, is critical to his administration.

285
00:15:31,440 --> 00:15:33,800
Speaker 7: The security of the dollar, therefore, he is, and ought

286
00:15:33,800 --> 00:15:38,040
Speaker 7: to be of major concern to every nation here. To

287
00:15:38,160 --> 00:15:41,680
Speaker 7: undermine the strength of the dollar would undermine the strength

288
00:15:41,680 --> 00:15:45,440
Speaker 7: of the free world. We are taking every prudent step

289
00:15:46,160 --> 00:15:49,600
Speaker 7: to maintain the strength of the dollar to improve our

290
00:15:49,600 --> 00:15:53,560
Speaker 7: balance of payments and to back up the dollar by

291
00:15:53,600 --> 00:15:57,320
Speaker 7: expanding the growth of our economy. We are pledged to

292
00:15:57,400 --> 00:16:01,280
Speaker 7: keep the dollar fully convertible in a goal and to

293
00:16:01,360 --> 00:16:06,160
Speaker 7: back that pledge with all our resources of gold and credit.

294
00:16:06,480 --> 00:16:07,960
Speaker 4: This is the thing. You can fix the problem one

295
00:16:07,960 --> 00:16:11,400
Speaker 4: of two ways. You can change the peg slash change

296
00:16:11,400 --> 00:16:14,320
Speaker 4: the system, or you can find ways to reinforce it

297
00:16:14,440 --> 00:16:17,320
Speaker 4: through sort of makeshift measures. These are the shortcuts, right,

298
00:16:17,360 --> 00:16:20,440
Speaker 4: And so you know Kennedy thinks this issue is public

299
00:16:20,520 --> 00:16:23,120
Speaker 4: enemy number two. Number one is nuclear war. Number two

300
00:16:23,160 --> 00:16:25,080
Speaker 4: is the stability of the dollar. He actually tells Ours

301
00:16:25,120 --> 00:16:27,720
Speaker 4: Lessenger this of the course of the campaign and then

302
00:16:28,320 --> 00:16:30,840
Speaker 4: into his early presidency, and so questions how do you

303
00:16:30,880 --> 00:16:33,280
Speaker 4: do it? So among those two options, he commissions a

304
00:16:33,280 --> 00:16:36,640
Speaker 4: test force. He's elected. He turns to Adelai Stephen Center,

305
00:16:36,640 --> 00:16:37,840
Speaker 4: and he says, what do I need to focus on?

306
00:16:37,880 --> 00:16:41,520
Speaker 4: And Stevenson says, definitely the dollar. In fact, this whole

307
00:16:41,520 --> 00:16:43,960
Speaker 4: system isn't working, so we probably want to think about

308
00:16:43,960 --> 00:16:46,480
Speaker 4: a new one. And Kennedy doesn't like that answer. Because

309
00:16:46,560 --> 00:16:49,320
Speaker 4: Kennedy is sensitive to a lot of different things. One

310
00:16:49,400 --> 00:16:52,120
Speaker 4: is he's portrayed his young and inexperience. There's actually memos

311
00:16:52,120 --> 00:16:53,600
Speaker 4: in the campaign about how to deal with the youth

312
00:16:53,600 --> 00:16:56,600
Speaker 4: and inexperienced issue, and so he's very sensitive to any

313
00:16:56,600 --> 00:16:59,080
Speaker 4: sense that he's not up to the job. And he

314
00:16:59,160 --> 00:17:01,960
Speaker 4: tells his advisors, if this thing falls apart's gonna be on me, right,

315
00:17:02,000 --> 00:17:04,000
Speaker 4: And so he doesn't like that. Generically, he's also like

316
00:17:04,040 --> 00:17:08,399
Speaker 4: fundamentally an institutionalist. He doesn't love the idea of dramatic change.

317
00:17:08,400 --> 00:17:11,240
Speaker 4: He doesn't like taking those risks, and so he basically

318
00:17:11,280 --> 00:17:14,080
Speaker 4: doesn't like what Stevenson and George Ball have to say.

319
00:17:14,359 --> 00:17:16,520
Speaker 4: So he says, I want a new report. So he

320
00:17:16,560 --> 00:17:19,680
Speaker 4: gets Alan Sprule, who's the outgoing I think he'd left

321
00:17:19,720 --> 00:17:21,560
Speaker 4: a couple of years earlier president of the New York Fed,

322
00:17:21,640 --> 00:17:25,320
Speaker 4: to write a different report. And that new report says,

323
00:17:25,640 --> 00:17:29,600
Speaker 4: don't mess with it. It's probably fine, it's not a crisis.

324
00:17:29,920 --> 00:17:33,480
Speaker 4: The public's impressions are wrong, but you need to address

325
00:17:33,520 --> 00:17:36,760
Speaker 4: this forcefully, but you know, don't do anything drastic, and

326
00:17:36,800 --> 00:17:40,480
Speaker 4: so he basically takes that to heart. Implicitly, the question

327
00:17:40,560 --> 00:17:41,760
Speaker 4: is who's going to execute on this.

328
00:17:41,960 --> 00:17:44,320
Speaker 3: And you think about this from the perspective of Kennedy,

329
00:17:44,400 --> 00:17:48,160
Speaker 3: who's just been put into this very difficult job. And

330
00:17:48,640 --> 00:17:52,080
Speaker 3: his advisors come to him and say, actually, we have

331
00:17:52,160 --> 00:17:55,480
Speaker 3: an international monetary system with a basic flaw in it,

332
00:17:55,520 --> 00:17:58,120
Speaker 3: which is the dollars pegged a gold at thirty five

333
00:17:58,200 --> 00:18:01,440
Speaker 3: dollars announce and it's ultimately going to have to break

334
00:18:01,440 --> 00:18:04,520
Speaker 3: that peg. This system doesn't work. We should do something else.

335
00:18:05,080 --> 00:18:07,800
Speaker 3: You're like, is there some way to keep the thing going?

336
00:18:08,480 --> 00:18:11,919
Speaker 3: And that's what leads the second report, and that's what

337
00:18:12,040 --> 00:18:14,600
Speaker 3: leads to the growth of the euro dollar market, because

338
00:18:14,640 --> 00:18:16,600
Speaker 3: it turns out that the way to keep the thing

339
00:18:16,640 --> 00:18:22,040
Speaker 3: going is to develop this offshore dollar alternative.

340
00:18:22,400 --> 00:18:24,320
Speaker 4: So now we can meet some actual characters in this story.

341
00:18:24,400 --> 00:18:26,840
Speaker 4: So there's the Treasury team that comes in with Kennedy

342
00:18:26,920 --> 00:18:29,120
Speaker 4: is head by at least with respect to this issue.

343
00:18:29,200 --> 00:18:32,400
Speaker 4: Is two people in particular. One's Douglas Dylon of Dylan Reid.

344
00:18:32,560 --> 00:18:34,560
Speaker 4: His father founded Dylan Reid. He's one of the wealthiest

345
00:18:34,600 --> 00:18:37,359
Speaker 4: people in the United States, the former ambassador to France,

346
00:18:38,000 --> 00:18:39,680
Speaker 4: and he was selected in part because he owned a

347
00:18:39,760 --> 00:18:43,200
Speaker 4: vineyard Oprion actually, so a very well known vineyard in Bordeaux,

348
00:18:43,480 --> 00:18:46,919
Speaker 4: so he had French roots sort of and does a

349
00:18:46,920 --> 00:18:48,800
Speaker 4: good job. He's put at State. He's a contender for

350
00:18:48,840 --> 00:18:51,840
Speaker 4: Secretary of State when Dulles leaves, he ultimately doesn't get

351
00:18:51,880 --> 00:18:54,040
Speaker 4: the job, but Kennedy wants to put some own at

352
00:18:54,040 --> 00:18:58,240
Speaker 4: Treasury who has a good business reputation, who is well respected,

353
00:18:58,320 --> 00:19:01,040
Speaker 4: has government experience, and people generally like this guy. He's

354
00:19:01,080 --> 00:19:04,600
Speaker 4: like seen as one of those consummate bureaucrats who's like

355
00:19:04,760 --> 00:19:07,800
Speaker 4: sharp and thoughtful and a good listener and clear in

356
00:19:07,840 --> 00:19:10,400
Speaker 4: all of these things, and so he brings with him Bob.

357
00:19:10,800 --> 00:19:13,320
Speaker 4: Bob russis from the New York FED. He actually served

358
00:19:13,320 --> 00:19:15,880
Speaker 4: in the Second Worl War under Charlie Kindelberger. Charlie Kinderburger

359
00:19:15,920 --> 00:19:17,879
Speaker 4: is the father in some sense of the idea of

360
00:19:17,920 --> 00:19:19,840
Speaker 4: the dollar as a key currency, or at least a

361
00:19:19,840 --> 00:19:22,040
Speaker 4: big proponent of it. But they were doing strategic bombing

362
00:19:22,080 --> 00:19:25,480
Speaker 4: targets together. Kinderberger was his commanding officer, so he had

363
00:19:25,520 --> 00:19:29,159
Speaker 4: some connections to this idea through his wartime experience of

364
00:19:29,200 --> 00:19:32,280
Speaker 4: a global dollar system. And their bias, both of them

365
00:19:32,320 --> 00:19:34,320
Speaker 4: is to reinforce the existing system. They kind of want

366
00:19:34,320 --> 00:19:38,439
Speaker 4: to find a way to save the Bretonwoods arrangement. So

367
00:19:38,520 --> 00:19:40,800
Speaker 4: here's Bob russa looking back from a few years later.

368
00:19:41,560 --> 00:19:46,440
Speaker 8: We got them to recognize after the big flurry at

369
00:19:46,480 --> 00:19:52,200
Speaker 8: camera had October twentieth, nineteen sixty four, when the market went.

370
00:19:52,520 --> 00:19:54,679
Speaker 9: Up to a forty dollars price.

371
00:19:56,040 --> 00:19:58,520
Speaker 8: That time that was looked at it was quite a

372
00:19:58,600 --> 00:20:03,600
Speaker 8: threat to the stability as a monetary gold price and

373
00:20:03,680 --> 00:20:09,440
Speaker 8: got them alarmed. And so after that, when it was clear,

374
00:20:09,520 --> 00:20:13,760
Speaker 8: particularly by the time President Kennedy came in and made

375
00:20:13,800 --> 00:20:16,199
Speaker 8: it firm that we were going to continue to support

376
00:20:16,240 --> 00:20:20,960
Speaker 8: thirty five dollars price, and then the London price began

377
00:20:21,359 --> 00:20:25,920
Speaker 8: coming down, it was fairly easy to persuade these other

378
00:20:26,000 --> 00:20:29,040
Speaker 8: countries that you know, we ought to be together in

379
00:20:29,080 --> 00:20:31,240
Speaker 8: this because as gold comes back.

380
00:20:31,000 --> 00:20:31,679
Speaker 9: Into the market.

381
00:20:31,720 --> 00:20:35,840
Speaker 8: Now we the United States don't want to have to

382
00:20:36,800 --> 00:20:39,080
Speaker 8: just have it appear that we're always taking all the

383
00:20:39,080 --> 00:20:39,920
Speaker 8: gold out.

384
00:20:42,000 --> 00:20:43,520
Speaker 9: Putting it in sometimes two.

385
00:20:43,320 --> 00:20:46,760
Speaker 8: Of course, but why don't we share this as a

386
00:20:46,800 --> 00:20:51,000
Speaker 8: buying pool when it comes into the market at thirty

387
00:20:51,040 --> 00:20:54,280
Speaker 8: five Then we won't be in there bidding against each other.

388
00:20:55,240 --> 00:20:57,400
Speaker 8: It will be an orderly arrangement, would be a little

389
00:20:57,400 --> 00:20:59,720
Speaker 8: bit of like a cartel, but in the interests of

390
00:20:59,720 --> 00:21:01,200
Speaker 8: the world monetary system.

391
00:21:02,000 --> 00:21:04,359
Speaker 4: On the other side, you have Walter Heller. Walter Heller

392
00:21:04,440 --> 00:21:07,000
Speaker 4: is the chair of the Council of Economic Advisors. Kenny's

393
00:21:07,040 --> 00:21:11,760
Speaker 4: trying to balance out Dylan's like somewhat conservative eisenhowerd administration

394
00:21:12,680 --> 00:21:14,760
Speaker 4: reputation with someone who's much more on the New Deal

395
00:21:14,800 --> 00:21:16,520
Speaker 4: liberal side of things, and The New York Times calls

396
00:21:16,560 --> 00:21:19,360
Speaker 4: him a prototype of the liberal economists. He's very well

397
00:21:19,400 --> 00:21:22,560
Speaker 4: known for his tax policy views, and he often talks

398
00:21:22,560 --> 00:21:24,760
Speaker 4: in terms of human flourishing, Right, we should adjust the

399
00:21:24,760 --> 00:21:27,600
Speaker 4: tax god to promote human flourishing. And he brings with

400
00:21:27,680 --> 00:21:30,840
Speaker 4: him Jim Tobin, who is a very well respected economist.

401
00:21:30,920 --> 00:21:32,879
Speaker 4: He won the James Big Clark Medal, which is kind

402
00:21:32,880 --> 00:21:34,760
Speaker 4: of like a Nobel prize ish thing in fifty five,

403
00:21:34,840 --> 00:21:36,639
Speaker 4: so he's very very well established, and he comes in

404
00:21:36,640 --> 00:21:38,240
Speaker 4: as one of the economists on the council, and in

405
00:21:38,280 --> 00:21:41,280
Speaker 4: particular the one task with international issues. And so they

406
00:21:41,320 --> 00:21:43,879
Speaker 4: think this whole thing is flawed from the start, and

407
00:21:43,920 --> 00:21:46,199
Speaker 4: they're pushed to the President elect, and eventually the president

408
00:21:46,640 --> 00:21:50,040
Speaker 4: is to do something brand new and think about all

409
00:21:50,119 --> 00:21:53,080
Speaker 4: kinds of different arrangements. Heller sends out, it's han of memos,

410
00:21:53,119 --> 00:21:55,639
Speaker 4: that kind of list. He says he does it with Russa,

411
00:21:55,760 --> 00:21:58,000
Speaker 4: but it's clear, like who's who in this and it

412
00:21:58,040 --> 00:22:00,359
Speaker 4: turns into a pretty contentious argument. I mean, there's actually

413
00:22:00,400 --> 00:22:03,600
Speaker 4: in the Kennedy Library archives, they have little political cartoons

414
00:22:03,640 --> 00:22:06,240
Speaker 4: the Deputy National Security Advisor Drew making fun of Bob

415
00:22:06,320 --> 00:22:08,639
Speaker 4: Russa and like all this stuff he's trying to do

416
00:22:08,680 --> 00:22:10,560
Speaker 4: at the same time, and in some of these memos

417
00:22:10,560 --> 00:22:13,600
Speaker 4: that kind of derogatory, like no one really believes what

418
00:22:13,640 --> 00:22:15,560
Speaker 4: this guy is writing. So there's a lot of tension

419
00:22:15,600 --> 00:22:17,000
Speaker 4: between the Treasury and the White House.

420
00:22:17,680 --> 00:22:22,600
Speaker 3: Kennedy appoints Dylan, who is a prominent member of the

421
00:22:22,640 --> 00:22:26,520
Speaker 3: opposing political party. So here we have this new democratic

422
00:22:26,520 --> 00:22:31,680
Speaker 3: administration coming in and one of the most important cabinet

423
00:22:31,720 --> 00:22:38,520
Speaker 3: posts goes to a very wealthy Wall Street scion from

424
00:22:38,520 --> 00:22:41,840
Speaker 3: the other political party. And so the battle within the

425
00:22:41,840 --> 00:22:47,440
Speaker 3: administration is also for the future of financial policy in

426
00:22:47,760 --> 00:22:52,840
Speaker 3: the Democratic Party, where you have the New Deal liberals

427
00:22:53,200 --> 00:23:00,520
Speaker 3: the FDR crew fighting this basically interloper. Who's Dylan losing

428
00:23:01,040 --> 00:23:07,160
Speaker 3: Because time and again, as Kennedy himself notes, Dylan thwarts

429
00:23:07,720 --> 00:23:13,000
Speaker 3: the new deoliberal economists in the administration, and Dylan is

430
00:23:13,040 --> 00:23:17,520
Speaker 3: the one who ultimately crafts the policy of the administration

431
00:23:17,640 --> 00:23:22,160
Speaker 3: and the policy that comes to dominate Democratic administrations that

432
00:23:22,200 --> 00:23:25,400
Speaker 3: succeed Kennedy as well. And so this is a very

433
00:23:25,440 --> 00:23:30,520
Speaker 3: important turning point in how the executive branch in democratic

434
00:23:30,520 --> 00:23:35,679
Speaker 3: administrations approaches financial policy. And it's no longer the FDR

435
00:23:35,840 --> 00:23:37,760
Speaker 3: vision that is in the driver's seat.

436
00:23:37,960 --> 00:23:41,919
Speaker 4: And ultimately, every time they're pitted against each other, the

437
00:23:41,960 --> 00:23:46,639
Speaker 4: treasure basically wins those arguments because the Treasury's advocating stability

438
00:23:47,200 --> 00:23:51,480
Speaker 4: and the CEA the Council of Economic Advisors, is advocating upheaval.

439
00:23:51,760 --> 00:23:55,080
Speaker 4: Now maybe productive upheople but something very dramatic, and so

440
00:23:55,200 --> 00:23:58,400
Speaker 4: Kennedy really is predisposed to go with the upheaval side

441
00:23:58,400 --> 00:24:00,920
Speaker 4: of things, and they keep it up. Ultimately, he wants

442
00:24:00,960 --> 00:24:03,080
Speaker 4: to reinforce the existing system. So the question is how

443
00:24:03,080 --> 00:24:05,880
Speaker 4: do they do that. How do euro dollars come in?

444
00:24:06,160 --> 00:24:09,119
Speaker 4: So the first thing they do is they try to

445
00:24:09,119 --> 00:24:11,280
Speaker 4: figure out what year dollars can do for them. And

446
00:24:11,760 --> 00:24:14,880
Speaker 4: the key here is to keep a global dollar system,

447
00:24:15,480 --> 00:24:18,520
Speaker 4: but to have it all offshore because one of the

448
00:24:18,560 --> 00:24:21,760
Speaker 4: big problems with the balance of payments is that Americans

449
00:24:21,800 --> 00:24:25,639
Speaker 4: are investing overseas, which means pushing dollars out of the

450
00:24:25,800 --> 00:24:29,040
Speaker 4: US and taking in financial assets. So the dollars are leaving,

451
00:24:29,080 --> 00:24:31,879
Speaker 4: financial assets are coming in, and that's a big source

452
00:24:31,920 --> 00:24:35,000
Speaker 4: of the flood of dollars into Europe and the risk

453
00:24:35,080 --> 00:24:37,159
Speaker 4: that those dollars will then be turned into gold. And

454
00:24:37,240 --> 00:24:39,600
Speaker 4: so you basically want to push all of that activity.

455
00:24:39,640 --> 00:24:41,840
Speaker 4: All those foreign corporations that want to borrow dollars, don't

456
00:24:41,880 --> 00:24:44,880
Speaker 4: borrow them in New York, borrow them in London. And

457
00:24:45,080 --> 00:24:46,679
Speaker 4: there's two ways to do that. One is you can

458
00:24:46,760 --> 00:24:50,040
Speaker 4: provide incentives to push that activity off shore. They do

459
00:24:50,080 --> 00:24:53,199
Speaker 4: that using the tax code. And the second is to

460
00:24:53,280 --> 00:24:56,840
Speaker 4: make the euro banks, the year dollar issuing banks, more

461
00:24:56,880 --> 00:25:00,960
Speaker 4: attractive to potential investors they can row their business. Because

462
00:25:01,000 --> 00:25:02,879
Speaker 4: if you want to take US financial activity push it

463
00:25:02,920 --> 00:25:05,080
Speaker 4: off shore, you need to make sure the euro dollar

464
00:25:05,119 --> 00:25:07,560
Speaker 4: system can accept it, can grow to accommodate a much

465
00:25:07,640 --> 00:25:11,800
Speaker 4: higher volume of transactions. And whenever banks take on more liabilities,

466
00:25:12,160 --> 00:25:14,920
Speaker 4: which is the same as taking in deposits, the risk

467
00:25:14,960 --> 00:25:18,240
Speaker 4: of a run grows. And so this is where people

468
00:25:18,280 --> 00:25:21,680
Speaker 4: become very acutely aware of the risk that leve talked

469
00:25:21,720 --> 00:25:23,600
Speaker 4: about it, which is in the US, if you have

470
00:25:23,800 --> 00:25:27,200
Speaker 4: liquidity problems, you can go to the FED. In Europe,

471
00:25:27,240 --> 00:25:30,280
Speaker 4: if you have dollar liquidity problems, there's nowhere to go.

472
00:25:30,640 --> 00:25:34,320
Speaker 3: The goal here is not to get US financial activity

473
00:25:34,760 --> 00:25:38,359
Speaker 3: offshore for its own sake. The goal is very much

474
00:25:38,560 --> 00:25:45,920
Speaker 3: to stop holders of dollars, especially foreign central banks, from

475
00:25:46,320 --> 00:25:49,199
Speaker 3: going to the gold window at the US Treasury and

476
00:25:49,320 --> 00:25:54,760
Speaker 3: draining our increasingly shrinking gold reserves. And so this is

477
00:25:54,840 --> 00:25:57,320
Speaker 3: a sort of a two step move. We're going to

478
00:25:57,400 --> 00:26:03,000
Speaker 3: have new investment opportunities so that you don't want to

479
00:26:03,160 --> 00:26:06,800
Speaker 3: go and withdraw the gold, so that you hold your

480
00:26:06,880 --> 00:26:11,199
Speaker 3: dollar balances offshore. We're going to build up this market.

481
00:26:11,440 --> 00:26:15,200
Speaker 3: It's going to be what they call the outer defenses

482
00:26:15,680 --> 00:26:19,359
Speaker 3: of essentially the Breton Woods International Monetary System.

483
00:26:19,480 --> 00:26:21,480
Speaker 4: It's basically a SPRUL advocates and this report it's all

484
00:26:21,520 --> 00:26:24,080
Speaker 4: about confidence, right, so we don't actually need to provide

485
00:26:24,119 --> 00:26:28,080
Speaker 4: anything other than assurances that someone's going to have their back,

486
00:26:28,200 --> 00:26:29,840
Speaker 4: because this is always a concern when the your dollar

487
00:26:29,920 --> 00:26:32,199
Speaker 4: market was growing, is that you know who's going to

488
00:26:32,320 --> 00:26:34,800
Speaker 4: solve the problem of liquidity if everyone goes to their

489
00:26:34,840 --> 00:26:37,720
Speaker 4: eurobank at the same time. And so what Dylan and

490
00:26:37,760 --> 00:26:39,760
Speaker 4: Russa come up with is the swap lines. Now, the

491
00:26:39,760 --> 00:26:43,360
Speaker 4: swap lines are initially from the Exchange Stabilization Fund, which

492
00:26:43,400 --> 00:26:46,119
Speaker 4: created in the thirties just intervene in foreign exchange markets.

493
00:26:46,200 --> 00:26:48,800
Speaker 4: So it allows the US government to buy foreign currency.

494
00:26:49,440 --> 00:26:52,159
Speaker 4: Buying foreign currency is the same as giving other people dollars, right,

495
00:26:52,200 --> 00:26:53,679
Speaker 4: you're just saying I need something in return. It might

496
00:26:53,720 --> 00:26:56,440
Speaker 4: as well be Stirling or Franks or something like that. Now,

497
00:26:56,480 --> 00:26:59,840
Speaker 4: the problem for Dylan Russa is the ESF is what's

498
00:26:59,840 --> 00:27:03,439
Speaker 4: called the funded vehicle, meaning it only has so much money,

499
00:27:03,640 --> 00:27:05,760
Speaker 4: and by the early sixties they've made a bunch of

500
00:27:05,840 --> 00:27:09,200
Speaker 4: commitments to Latin American countries that basically mean there's no

501
00:27:09,280 --> 00:27:12,680
Speaker 4: gunpowder left and the resources they have at their disposals

502
00:27:12,680 --> 00:27:15,080
Speaker 4: through the ESF, which is controlled by the Treasury, are minimal.

503
00:27:15,720 --> 00:27:18,440
Speaker 4: But guess who has essentially infinite resources when it comes

504
00:27:18,440 --> 00:27:22,080
Speaker 4: to printing money is the central bank. And so they

505
00:27:22,640 --> 00:27:25,960
Speaker 4: want to be able to intervene in foreign exchange markets,

506
00:27:26,000 --> 00:27:30,080
Speaker 4: which is a different word for lending dollars to foreign

507
00:27:30,119 --> 00:27:33,280
Speaker 4: central banks that could then lend them to Euro dollar issues.

508
00:27:33,280 --> 00:27:36,199
Speaker 4: And so if a eurobank comes into trouble, which they

509
00:27:36,240 --> 00:27:38,760
Speaker 4: will do with some frequency throughout the sixties, they go

510
00:27:38,800 --> 00:27:40,439
Speaker 4: to their central bank and say I need dollars. That

511
00:27:40,520 --> 00:27:42,520
Speaker 4: central bank goes to the FED in this case and

512
00:27:42,720 --> 00:27:45,480
Speaker 4: say I need dollars and so you can lend those

513
00:27:45,520 --> 00:27:50,200
Speaker 4: dollars that effectively backstop non US banks. So they do

514
00:27:50,240 --> 00:27:52,199
Speaker 4: it through swap transaction. But that's just the way they

515
00:27:52,200 --> 00:27:55,800
Speaker 4: structure it. The question is is the FED comfortable with

516
00:27:55,840 --> 00:27:59,720
Speaker 4: this because they had done some foreign exchange transactions in

517
00:27:59,720 --> 00:28:02,520
Speaker 4: the past, but it wasn't really a core part of

518
00:28:02,560 --> 00:28:05,040
Speaker 4: what they did previously, and they didn't have a standing

519
00:28:05,040 --> 00:28:08,119
Speaker 4: authorization to do what are called open market operations and

520
00:28:08,200 --> 00:28:11,280
Speaker 4: foreign currencies. So these swaps are a new kind of

521
00:28:11,280 --> 00:28:14,800
Speaker 4: open market operation that the committee, the FMC, the Federal

522
00:28:14,800 --> 00:28:19,120
Speaker 4: Open Market Committee, needs to decide is legal, authorized, is

523
00:28:19,160 --> 00:28:21,879
Speaker 4: within their mandate, is something they're comfortable with from the

524
00:28:21,880 --> 00:28:26,160
Speaker 4: policy perspective. And Bill Martin is the chair of the FED.

525
00:28:26,160 --> 00:28:27,720
Speaker 4: He's been the chair for a while at this point.

526
00:28:27,840 --> 00:28:31,000
Speaker 4: He's actually the Treasury negotiator for the Federal Reserve Treasury

527
00:28:31,040 --> 00:28:34,120
Speaker 4: Accord that deepegs the bond market after the Second World War,

528
00:28:34,200 --> 00:28:36,359
Speaker 4: so he's he's been around DC a lot. He's a

529
00:28:36,440 --> 00:28:39,160
Speaker 4: very well known character. He's a very powerful chairman, and

530
00:28:39,240 --> 00:28:40,840
Speaker 4: he is sort of, at least based on some of

531
00:28:40,880 --> 00:28:43,120
Speaker 4: the oral interviews that are done later with Bob Bruce

532
00:28:43,160 --> 00:28:46,760
Speaker 4: among others, pretty uncomfortable with this idea, and it's pretty

533
00:28:46,800 --> 00:28:49,760
Speaker 4: controversial across the committee. Now they don't reject it outright,

534
00:28:49,800 --> 00:28:54,000
Speaker 4: but they are wary. But Kennedy and Dylan and russ

535
00:28:54,000 --> 00:28:56,520
Speaker 4: are pretty adamant that this sort of has to happen,

536
00:28:57,040 --> 00:28:58,880
Speaker 4: and they put a lot of pressure on Martin, and

537
00:28:58,920 --> 00:29:03,520
Speaker 4: eventually they offer Treasures General Counsel to author an opinion

538
00:29:03,600 --> 00:29:06,360
Speaker 4: saying this is legally authorized. And then they get Bobby Kennedy,

539
00:29:06,760 --> 00:29:08,400
Speaker 4: which the FED didn't ask for it, to write an

540
00:29:08,440 --> 00:29:11,040
Speaker 4: opinion saying this is legally authorized, so they can have

541
00:29:11,200 --> 00:29:13,800
Speaker 4: something in their back pocket when Congress asks questions, and

542
00:29:13,920 --> 00:29:31,880
Speaker 4: Congress does ask questions pretty quickly. In one of his

543
00:29:32,160 --> 00:29:35,760
Speaker 4: oral history interviews, Russa remembers the debate and the fed's concerns,

544
00:29:35,800 --> 00:29:37,640
Speaker 4: in particular getting.

545
00:29:37,440 --> 00:29:39,880
Speaker 9: The swap started. There were two problems.

546
00:29:39,920 --> 00:29:42,720
Speaker 8: Of course, other countries were suspicious of that too, didn't

547
00:29:42,720 --> 00:29:44,000
Speaker 8: know quite what we had in mind.

548
00:29:44,960 --> 00:29:46,200
Speaker 9: And incidentally, I.

549
00:29:46,200 --> 00:29:50,400
Speaker 8: Had to research the existing legislation very carefully, but I

550
00:29:50,440 --> 00:29:53,520
Speaker 8: discovered that we didn't need laws. I could go ahead

551
00:29:53,520 --> 00:29:56,520
Speaker 8: and do it under president legislation. I had to get

552
00:29:56,560 --> 00:30:01,120
Speaker 8: a ruling in the General Council. The Fell Reserve was

553
00:30:01,400 --> 00:30:04,760
Speaker 8: very suspicious and reluctant. It's a big body, people from

554
00:30:04,760 --> 00:30:07,560
Speaker 8: all over the country, and you can't sit down and

555
00:30:07,560 --> 00:30:11,400
Speaker 8: explain it all to them all at once and expected

556
00:30:11,480 --> 00:30:17,000
Speaker 8: to go across. So I figured, and Dylan certain agreed

557
00:30:17,040 --> 00:30:17,240
Speaker 8: with this.

558
00:30:17,320 --> 00:30:18,920
Speaker 9: What we had to do was prove it to him.

559
00:30:20,000 --> 00:30:24,320
Speaker 8: What we had to do there with the FED was

560
00:30:24,320 --> 00:30:29,040
Speaker 8: was get going by having the New York Fed through Coombs,

561
00:30:29,200 --> 00:30:33,200
Speaker 8: arrange a swap line with this bank or.

562
00:30:33,120 --> 00:30:36,480
Speaker 9: That central bank using Treasury money.

563
00:30:37,280 --> 00:30:40,000
Speaker 8: The Treasury didn't have very much money, and the Stabilization

564
00:30:40,120 --> 00:30:42,240
Speaker 8: Fund at that time and free money, we had less

565
00:30:42,240 --> 00:30:46,480
Speaker 8: than three hundred million dollars. But I did a little

566
00:30:46,480 --> 00:30:50,720
Speaker 8: bit of double counting. I'd make a deal with Germany

567
00:30:50,760 --> 00:30:54,560
Speaker 8: for one hundred minion, and France for fifty, England for

568
00:30:54,600 --> 00:30:57,760
Speaker 8: fifty million, and maybe added up to four or five

569
00:30:57,840 --> 00:31:01,400
Speaker 8: hundred million, always assuming I never have.

570
00:31:01,400 --> 00:31:02,400
Speaker 9: To use them all at once.

571
00:31:03,160 --> 00:31:05,480
Speaker 8: I got up to a million by the end of

572
00:31:05,520 --> 00:31:08,800
Speaker 8: the first year, and we had used it a little

573
00:31:08,840 --> 00:31:15,200
Speaker 8: by that time, not for the US but for the British,

574
00:31:15,240 --> 00:31:18,080
Speaker 8: and it had proved itself enough so that we could

575
00:31:18,120 --> 00:31:21,040
Speaker 8: then go to the Federal Reserve and say, look, this

576
00:31:21,120 --> 00:31:23,080
Speaker 8: is a perfectly workable arrangement.

577
00:31:23,160 --> 00:31:25,040
Speaker 9: These are short term.

578
00:31:25,880 --> 00:31:29,800
Speaker 8: You get the deposit of another currency when we pay

579
00:31:29,800 --> 00:31:30,440
Speaker 8: out ours.

580
00:31:31,040 --> 00:31:33,920
Speaker 9: This is ideal for the central bank to do.

581
00:31:34,840 --> 00:31:37,040
Speaker 3: And you can see why they're worried about this. Right

582
00:31:37,400 --> 00:31:41,680
Speaker 3: in the nineteen thirties, Congress sets up the Exchange Stabilization

583
00:31:41,840 --> 00:31:45,560
Speaker 3: Fund and puts it in the Treasury Department, limits its

584
00:31:45,600 --> 00:31:49,200
Speaker 3: funding and says this is the way the US government

585
00:31:49,240 --> 00:31:53,400
Speaker 3: is going to manage exchange fluctuation of the dollar against

586
00:31:53,400 --> 00:31:56,400
Speaker 3: other currencies. And now we have the Treasury going to

587
00:31:56,440 --> 00:31:59,480
Speaker 3: the FED and saying we don't have enough gunpowder. Can

588
00:31:59,520 --> 00:32:03,080
Speaker 3: you do it for us? So the FED might think, well,

589
00:32:03,120 --> 00:32:06,160
Speaker 3: go to Congress and get more appropriation. You're kind of

590
00:32:06,200 --> 00:32:10,000
Speaker 3: putting us in a tight spot here. This is just

591
00:32:10,120 --> 00:32:14,480
Speaker 3: sort of also stage one, which is the foreign exchange

592
00:32:14,840 --> 00:32:18,960
Speaker 3: swap lines. There becomes an additional pressure point for the FED,

593
00:32:19,400 --> 00:32:23,239
Speaker 3: which is the swap lines that are also set up

594
00:32:23,280 --> 00:32:28,080
Speaker 3: in parallel to support euro dollar issue ince overseas. So

595
00:32:28,440 --> 00:32:32,400
Speaker 3: the sort of conventional swap lines the sort of standard

596
00:32:32,400 --> 00:32:35,360
Speaker 3: account of this period. When the swap lines are set up,

597
00:32:35,600 --> 00:32:39,800
Speaker 3: it's all focused on replacing the ESF to intervene in

598
00:32:39,920 --> 00:32:42,959
Speaker 3: foreign exchange markets. But they set up these parallel swap

599
00:32:43,000 --> 00:32:46,240
Speaker 3: lines that are about lending dollars to foreign central banks.

600
00:32:46,840 --> 00:32:49,880
Speaker 3: And there you have the FED also in a spot

601
00:32:50,280 --> 00:32:53,800
Speaker 3: because the Federal Reserve Act was not set up with

602
00:32:53,840 --> 00:32:57,480
Speaker 3: the idea in mind that the Federal Reserve would be

603
00:32:58,200 --> 00:33:06,360
Speaker 3: essentially facilitated the backstopping of euro dollar issuers in overseas markets.

604
00:33:06,720 --> 00:33:11,640
Speaker 3: But the Treasury is gung ho, and this is existential

605
00:33:12,040 --> 00:33:16,240
Speaker 3: for the administration because they have tied themselves to the

606
00:33:16,360 --> 00:33:20,600
Speaker 3: mass of the thirty five dollars peg, and they are

607
00:33:21,120 --> 00:33:26,400
Speaker 3: afraid of both the political end financial consequences of showing

608
00:33:26,440 --> 00:33:30,040
Speaker 3: any weakness. And so just even to have the Treasure

609
00:33:30,080 --> 00:33:32,120
Speaker 3: Secretary go to Congress and say we don't have enough

610
00:33:32,160 --> 00:33:35,760
Speaker 3: resources in the ESF, they would be afraid about the

611
00:33:35,880 --> 00:33:38,200
Speaker 3: lack of confidence that that might signal to the market

612
00:33:38,240 --> 00:33:42,720
Speaker 3: about the American ability to keep to the thirty five dollars.

613
00:33:43,480 --> 00:33:46,240
Speaker 4: So they get the approval eventually with the backing of

614
00:33:46,480 --> 00:33:49,640
Speaker 4: the Treasure General Counsel and Bobby Kennedy and everyone kind

615
00:33:49,640 --> 00:33:51,680
Speaker 4: of gets together and the committee approves, and so now

616
00:33:51,720 --> 00:33:54,800
Speaker 4: they have swap lines and they need someone to run

617
00:33:54,840 --> 00:33:56,200
Speaker 4: them and so this is where we meet kind of

618
00:33:56,200 --> 00:33:59,040
Speaker 4: the third character here, this guy Charlie Cooms. It's kind

619
00:33:59,040 --> 00:34:00,800
Speaker 4: of the true believer. You can I think of Douglas

620
00:34:00,840 --> 00:34:03,120
Speaker 4: Dylan as kind of the operator. He's like em in

621
00:34:03,200 --> 00:34:06,120
Speaker 4: the James Bond canon. You could think of Barb Russ

622
00:34:06,160 --> 00:34:08,040
Speaker 4: as Q, right, he's coming up with all the ideas

623
00:34:08,040 --> 00:34:10,759
Speaker 4: with the different gadgets they can use. But Double O

624
00:34:10,880 --> 00:34:14,840
Speaker 4: seven is Charlie Coombs franchise. Shot was his liaison with

625
00:34:14,880 --> 00:34:17,120
Speaker 4: the Treasury in those early years, and he remembers Coombs

626
00:34:17,160 --> 00:34:19,280
Speaker 4: as a quote unquote CIA type operator.

627
00:34:19,680 --> 00:34:22,960
Speaker 5: Well, he was a pretty complex personality, but underneath it all,

628
00:34:23,400 --> 00:34:27,400
Speaker 5: he was a CIA type operator. He was a discrete

629
00:34:28,080 --> 00:34:33,960
Speaker 5: spy over head in the national interest of the United States,

630
00:34:34,239 --> 00:34:37,360
Speaker 5: which he thought he knew exactly what it was at heart,

631
00:34:37,520 --> 00:34:40,200
Speaker 5: and he was willing to do with anything in order

632
00:34:40,280 --> 00:34:44,080
Speaker 5: to achieve those objective. He was a tool operator.

633
00:34:45,000 --> 00:34:46,560
Speaker 4: And now we don't know this for sure, but he

634
00:34:46,600 --> 00:34:49,279
Speaker 4: was actually counter intelligence during the Second World War. He

635
00:34:49,400 --> 00:34:51,719
Speaker 4: ends up in Greece in nineteen forty seven, right after

636
00:34:51,719 --> 00:34:53,920
Speaker 4: the Civil War starts. That's the origins of containment. It's

637
00:34:53,960 --> 00:34:56,799
Speaker 4: the first CIA hot zone they called it. And then

638
00:34:56,960 --> 00:34:59,279
Speaker 4: he comes back to New York as a PhD economist

639
00:35:00,040 --> 00:35:02,720
Speaker 4: and gets Bob Rus's old job. Actually he was Ruth's deputy,

640
00:35:02,760 --> 00:35:05,400
Speaker 4: and then he gets Ruth's job, and then he's selected

641
00:35:05,440 --> 00:35:08,839
Speaker 4: as the Special Manager for Foreign Exchange in nineteen sixty two.

642
00:35:08,880 --> 00:35:12,680
Speaker 4: Now the system open market account Manager manages the bond portfolio,

643
00:35:12,840 --> 00:35:16,080
Speaker 4: still does, but they create a new position that's very

644
00:35:16,320 --> 00:35:18,960
Speaker 4: senior in the organization called a Special Manager for Foreign Exchange,

645
00:35:18,960 --> 00:35:22,360
Speaker 4: and his job is to negotiate and operate the swap lines.

646
00:35:22,760 --> 00:35:26,200
Speaker 4: And the understanding seems to have been that the Treasury

647
00:35:26,239 --> 00:35:29,560
Speaker 4: would call the shots. They're what one of their former officers,

648
00:35:29,600 --> 00:35:32,040
Speaker 4: who was actually the gopher between the Treasury and the FED,

649
00:35:32,400 --> 00:35:35,439
Speaker 4: described as the Treasury having political authority and the FED

650
00:35:35,520 --> 00:35:38,480
Speaker 4: having technical authority, Meaning the Treasury is ultimately calling the

651
00:35:38,480 --> 00:35:41,719
Speaker 4: shots for who gets what when, and the FED goes

652
00:35:41,719 --> 00:35:44,120
Speaker 4: out and makes that happen. Now, we just know that

653
00:35:44,160 --> 00:35:46,440
Speaker 4: from one oral interview, so like what actually happened on

654
00:35:46,480 --> 00:35:48,000
Speaker 4: a day to day basis is harder to say, but

655
00:35:48,320 --> 00:35:51,840
Speaker 4: it was generally acknowledged. And Rusa represents to Kennedy the

656
00:35:51,920 --> 00:35:54,319
Speaker 4: fact that Treasury is sort of in charge of international

657
00:35:54,360 --> 00:35:57,919
Speaker 4: relations in a financial context, and so Charlie runs around

658
00:35:57,920 --> 00:36:01,280
Speaker 4: Europe setting up swap lines, art with London and Paris

659
00:36:01,280 --> 00:36:04,840
Speaker 4: and the usual places. He also ends up in Basle, Switzerland. Basil,

660
00:36:04,880 --> 00:36:08,040
Speaker 4: Switzerland is the headquarters of the Bank for National Settlements,

661
00:36:08,320 --> 00:36:10,759
Speaker 4: which is an old institution. It comes from I think

662
00:36:10,840 --> 00:36:13,319
Speaker 4: nineteen thirty one. It's founded and it's essentially a bank

663
00:36:13,360 --> 00:36:16,000
Speaker 4: to central banks. So it's a convening point for central

664
00:36:16,000 --> 00:36:18,640
Speaker 4: bank still is. It's a very important institution. They have

665
00:36:18,680 --> 00:36:22,360
Speaker 4: their own banking services today and in the nineteen sixties.

666
00:36:22,400 --> 00:36:24,920
Speaker 4: And so he sets up a secret swap line with

667
00:36:25,000 --> 00:36:28,080
Speaker 4: the Bank for the National Settlements that is in currencies

668
00:36:28,120 --> 00:36:30,960
Speaker 4: other than Swiss Franks, despite the fact that they're in Switzerland,

669
00:36:31,120 --> 00:36:35,359
Speaker 4: and the explicit purpose of that, which recent research has

670
00:36:35,440 --> 00:36:38,360
Speaker 4: sort of revealed through archival stuff, is to support the

671
00:36:38,400 --> 00:36:41,279
Speaker 4: ear dollar market, and they do that in Switzerland. They

672
00:36:41,320 --> 00:36:44,440
Speaker 4: do it around ur ends sort of seasonal stringency. They

673
00:36:44,480 --> 00:36:47,440
Speaker 4: provide liquidity to the ear dollar market. So they're actively

674
00:36:47,480 --> 00:36:50,720
Speaker 4: supporting the stability of eurobanks. As soon as these swap

675
00:36:50,719 --> 00:36:53,520
Speaker 4: lines are in place, they're they're relatively active use and

676
00:36:53,600 --> 00:36:57,080
Speaker 4: so now you have this reciprocal credit agreement network. That's

677
00:36:57,120 --> 00:36:58,520
Speaker 4: what they call it. They didn't call them swap lines

678
00:36:58,560 --> 00:37:01,400
Speaker 4: at the time. Kennedy tells Congress about this in his

679
00:37:01,440 --> 00:37:03,799
Speaker 4: Bounce a payments message, and he's like very proud of

680
00:37:03,840 --> 00:37:08,239
Speaker 4: this is like one of the clever effective backstops of

681
00:37:08,280 --> 00:37:11,160
Speaker 4: the global dollar system, because now the US can use

682
00:37:11,200 --> 00:37:14,680
Speaker 4: the firepower of its central bank to keep the dollars

683
00:37:14,719 --> 00:37:16,640
Speaker 4: stable and strong internationally.

684
00:37:17,160 --> 00:37:20,160
Speaker 5: But as they started out, Oosa, who by then was

685
00:37:20,200 --> 00:37:25,399
Speaker 5: a federal government official, was asserting the supremacy of the

686
00:37:25,440 --> 00:37:32,080
Speaker 5: political arm, and Holmes was advertise and William Chetney Watten,

687
00:37:32,360 --> 00:37:37,640
Speaker 5: we're trying to assert the supremacy of the technical arm

688
00:37:37,760 --> 00:37:42,160
Speaker 5: to carry out the technical OPVOI, you know what I mean.

689
00:37:42,600 --> 00:37:47,479
Speaker 5: Combs and his associates, we're trying to make us look

690
00:37:47,600 --> 00:37:51,520
Speaker 5: like you have to be really good for an exchange

691
00:37:51,520 --> 00:37:53,480
Speaker 5: man and know the markets in order to know what

692
00:37:53,480 --> 00:38:03,640
Speaker 5: you're doing. And an Osa and Diven we're saying, including

693
00:38:03,680 --> 00:38:07,600
Speaker 5: on foreign policy, and we know best what to do.

694
00:38:08,239 --> 00:38:10,040
Speaker 4: You know, this is the point where the system can

695
00:38:10,120 --> 00:38:12,680
Speaker 4: really grow. So euro dollars now have implicit backing from

696
00:38:12,680 --> 00:38:15,120
Speaker 4: the Federal Reserve, or at least by arm's length through

697
00:38:15,120 --> 00:38:17,760
Speaker 4: the BIS. They have a source of liquidity in dollars,

698
00:38:17,800 --> 00:38:22,799
Speaker 4: and so they grow rapidly. And the interestiqualization tax, which

699
00:38:22,840 --> 00:38:25,400
Speaker 4: is the mechanism by which they pushed some of this

700
00:38:25,719 --> 00:38:30,200
Speaker 4: financial activity offshore, provides yet another use case. Eurobonds are issued,

701
00:38:30,200 --> 00:38:33,120
Speaker 4: which is just dollar denominated bonds listed in Europe funded

702
00:38:33,160 --> 00:38:35,680
Speaker 4: with Euro dollars. The proceeds of those raises go into

703
00:38:35,719 --> 00:38:39,400
Speaker 4: eurodo system, and everything's kind of set up for a

704
00:38:39,480 --> 00:38:43,359
Speaker 4: virtuous cycle. And by the end of the decade, it's

705
00:38:43,400 --> 00:38:44,520
Speaker 4: a massive market.

706
00:38:44,800 --> 00:38:47,680
Speaker 3: You go from like half a tether to a Bank

707
00:38:47,719 --> 00:38:48,280
Speaker 3: of America.

708
00:38:48,960 --> 00:38:51,480
Speaker 4: Yeah, in nineteen seventy it's a seventy billion dollar market.

709
00:38:51,480 --> 00:38:54,480
Speaker 4: If you size that to the US economy, it's about

710
00:38:54,480 --> 00:38:57,040
Speaker 4: one point eight trillion dollars in today's standards. So it's

711
00:38:57,080 --> 00:38:59,160
Speaker 4: a very big market by the end of the decade,

712
00:38:59,520 --> 00:39:01,960
Speaker 4: and it's starting to be more trouble than it's worth.

713
00:39:02,239 --> 00:39:05,279
Speaker 4: So there have been warnings along the way this thing

714
00:39:05,360 --> 00:39:08,800
Speaker 4: might be a problem. It's funding speculation, potentially against the dollar.

715
00:39:09,040 --> 00:39:13,480
Speaker 4: It's somewhat unstable. Regulations are not uniform. There are some

716
00:39:13,520 --> 00:39:15,560
Speaker 4: attempts to control it, but the US kind of juices

717
00:39:15,640 --> 00:39:18,360
Speaker 4: is a bit by regulation Q is adjusted in a

718
00:39:18,400 --> 00:39:20,480
Speaker 4: way that facilitates ear a Dollar's no other reasons for

719
00:39:20,520 --> 00:39:22,400
Speaker 4: that that made sense domestically, But they're willing to let

720
00:39:22,440 --> 00:39:25,000
Speaker 4: the year dollar market grow. They don't really put reserve

721
00:39:25,000 --> 00:39:27,439
Speaker 4: requirements on it. And actually Martin is quite resistant even

722
00:39:27,719 --> 00:39:30,840
Speaker 4: to putting reserve requirements on US bank branches that are

723
00:39:30,920 --> 00:39:33,400
Speaker 4: raising year dollars. He tends not to bring the issue

724
00:39:33,440 --> 00:39:36,239
Speaker 4: up in meetings. And now you have this, let's call

725
00:39:36,239 --> 00:39:39,000
Speaker 4: it one point eight trillion in today's terms, growing twenty

726
00:39:39,000 --> 00:39:42,920
Speaker 4: five percent a year, and people are starting to get worried,

727
00:39:43,000 --> 00:39:46,479
Speaker 4: like really worried. And the French foreign minister who coined

728
00:39:46,480 --> 00:39:49,000
Speaker 4: the term exorbitan privilege calls it a hydra headed monster.

729
00:39:49,480 --> 00:39:51,920
Speaker 4: This is now people are getting worried that the system

730
00:39:51,960 --> 00:39:53,640
Speaker 4: is going to eat itself. So this is such a

731
00:39:53,680 --> 00:39:58,680
Speaker 4: successful solution to the immediate problem of offshoring US financial

732
00:39:58,760 --> 00:40:00,800
Speaker 4: activity that by the en the end of the decade,

733
00:40:00,840 --> 00:40:04,440
Speaker 4: you have continued gold outflows funded in part by speculation

734
00:40:04,560 --> 00:40:07,320
Speaker 4: through the euro dollar market, and rapid movements of capital

735
00:40:07,320 --> 00:40:10,719
Speaker 4: between different places, searching for either safety or higher interest

736
00:40:10,760 --> 00:40:13,400
Speaker 4: rates or both. And so the whole system is getting

737
00:40:13,480 --> 00:40:17,879
Speaker 4: very unstable because at some point one of these two

738
00:40:17,880 --> 00:40:19,920
Speaker 4: things has to give. Either Euro dollars have to be

739
00:40:19,960 --> 00:40:23,440
Speaker 4: controlled or this system has to get completely reworked. And

740
00:40:23,480 --> 00:40:25,879
Speaker 4: it's unclear in the early seventies which of these two

741
00:40:26,480 --> 00:40:27,680
Speaker 4: forces is going to prevail.

742
00:40:33,840 --> 00:40:37,960
Speaker 2: Dunk dunt, dunh What a cliffhanger. Okay, that was the

743
00:40:38,000 --> 00:40:41,560
Speaker 2: second episode of our special three part series examining the

744
00:40:41,600 --> 00:40:44,759
Speaker 2: origins of euro dollars. So by the end of the

745
00:40:44,840 --> 00:40:49,279
Speaker 2: nineteen sixties, this market has grown from essentially nothing to

746
00:40:49,400 --> 00:40:54,279
Speaker 2: about seventy billion dollars, and that growth has been essential

747
00:40:54,360 --> 00:40:58,120
Speaker 2: to maintaining the breton Wood system. But the question is

748
00:40:58,480 --> 00:40:59,200
Speaker 2: at what cost?

749
00:40:59,840 --> 00:41:00,000
Speaker 3: Time?

750
00:41:00,040 --> 00:41:02,000
Speaker 1: Ye I'm things you're about to get a little crazy

751
00:41:02,040 --> 00:41:04,759
Speaker 1: as we head into the nineteen seventies and beyond, just

752
00:41:04,800 --> 00:41:08,360
Speaker 1: sort of a wild decade I think for monetary policy.

753
00:41:08,719 --> 00:41:12,240
Speaker 1: Nixon famously shaking up the entire post war monetary system.

754
00:41:12,520 --> 00:41:15,200
Speaker 1: People love to talk about the Nixon gold shock, like

755
00:41:15,239 --> 00:41:18,280
Speaker 1: what happened in nineteen seventy one, all these great wild

756
00:41:18,360 --> 00:41:21,000
Speaker 1: charts they're always floating around on gold and crypto Twitter.

757
00:41:21,239 --> 00:41:24,080
Speaker 1: But if I'm being on this, I have very little

758
00:41:24,239 --> 00:41:27,759
Speaker 1: understanding of what that actually was, why he did it,

759
00:41:27,840 --> 00:41:30,000
Speaker 1: what it meant, why it was done, and so forth.

760
00:41:30,160 --> 00:41:31,440
Speaker 1: So I'm looking forward to finding out.

761
00:41:31,840 --> 00:41:35,520
Speaker 2: Yeah, there's the gold shock, and there's an oil shock,

762
00:41:35,920 --> 00:41:39,360
Speaker 2: and there's also a kind of financial shock in the

763
00:41:39,600 --> 00:41:44,560
Speaker 2: form of a somewhat mysterious bank collapse. And we hope

764
00:41:44,560 --> 00:41:47,520
Speaker 2: you'll join us for the third installment in our ongoing

765
00:41:47,560 --> 00:41:51,320
Speaker 2: series in which Josh Younger and levmnand continue the story

766
00:41:51,360 --> 00:41:54,239
Speaker 2: of euro dollars. But in the meantime, this has been

767
00:41:54,320 --> 00:41:57,799
Speaker 2: another episode of the Authoughts podcast. I'm Tracy Alloway. You

768
00:41:57,800 --> 00:41:59,560
Speaker 2: can follow me at Tracy Alloway.

769
00:41:59,840 --> 00:42:02,480
Speaker 1: I'm Joe Wisenthal. You can follow me at the Stalwart.

770
00:42:02,560 --> 00:42:06,200
Speaker 1: Follow one of our special guests, levmanand he's at levmanand

771
00:42:06,680 --> 00:42:09,560
Speaker 1: our other special guest, Josh Younger he's not on Twitter.

772
00:42:09,960 --> 00:42:13,200
Speaker 1: Thanks to our producers Kerman Rodriguez at krbin ermann dash

773
00:42:13,200 --> 00:42:17,040
Speaker 1: Ol Bennett at Dashbot and Kilbrooks at Kilbrooks. And special

774
00:42:17,080 --> 00:42:20,480
Speaker 1: thanks to our sound engineer Blake Maples. From our Oddlots content,

775
00:42:20,520 --> 00:42:22,799
Speaker 1: go to bloomberg dot com slash odd lots, where we

776
00:42:22,800 --> 00:42:25,799
Speaker 1: have transcripts, a blog, and a daily newsletter and you

777
00:42:25,800 --> 00:42:27,840
Speaker 1: can chat about all of these topics twenty four to

778
00:42:27,840 --> 00:42:31,359
Speaker 1: seven in our discord Discord dot gg slash.

779
00:42:31,000 --> 00:42:33,719
Speaker 2: Odd Lots and if you enjoy Odd Lots, If you

780
00:42:33,920 --> 00:42:36,200
Speaker 2: like it when we bring you the hidden history of

781
00:42:36,239 --> 00:42:39,520
Speaker 2: euro dollars, then please leave us a positive review on

782
00:42:39,560 --> 00:42:42,759
Speaker 2: your favorite podcast platform. And remember, if you are a

783
00:42:42,800 --> 00:42:45,960
Speaker 2: Bloomberg subscriber, you can listen to all of our episodes

784
00:42:46,080 --> 00:42:48,600
Speaker 2: absolutely ad free. All you need to do is find

785
00:42:48,640 --> 00:42:52,399
Speaker 2: the Bloomberg channel on Apple Podcasts and follow the instructions there.

786
00:42:52,760 --> 00:43:10,320
Speaker 2: Thanks for listening in