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![1925
BRITAIN
Churchill appointed chancellor of the exchequer
Highest unemployment in Europe
Return to the the gold standard
”Because he has no instinctive judgment to
prevent him from making mistakes and
because, lacking this instinctive judgment
he was deafened by the clamorous voices
of conventional finance” [Referring to
Churchill’s decision to return to the gold
standard]](https://image.slidesharecdn.com/6c673d08-9366-4576-86d5-e1c2364dbd28-150707190436-lva1-app6891/75/BGGE-12-2048.jpg)
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BGGE
- 1. LORDS OF FINANCE BookReview Presented by: Pallavi Madaan, Lacey Burnett, Deepika Bajrang and Becca Parrott
- 2. LORDS OF FINANCE: THEBANKERSWHO BROKE THEWORLD By Liaquat Ahamed The Penguin Press
- 3. COUNTRIES OF INTEREST UnitedStates Britain France Germany
- 4. MAIN CHARACTERS Emile Moreau, Headof the Bank of France Montagu Norman Head of Bank of England Hjalmar Schacht Head of German Reichsbank Benjamin Strong Head of NewYork Fed
- 5. JOHN MAYNARD KEYNES ‘Thehero of the book” Economic observer before he became the Economist • No official position to exercise power • Observations were infallibly right and increased his popularity • Came to notice in 1919 when he was 36 • Strong views drew attention • Advisor at Paris Peace conference His two main stands on policy mistakes were: 1. Imposing reparation on Germany after WWI was detrimental for the world economy 2. The gold standard that put the world in a difficult position after a lot of debt
- 6. The Gold Standard Whyit was thought as useful? • They thought they needed an external discipline to ensure government did not borrow too much • Massive inflation after WWI • Gold standard as cure of hyperinflation Gold changing hands Run on the banks Problems with the Gold standard • Gold supplies had not kept pace with growth in the economy • Value of gold to goods had diminished as the countries went back to the same exchange rate • After the war, most of the gold ended up in the US Changing from the Gold Standard (1931 )Britain, (1931) Germany, (1933) US, (1936) France Hindsight :The sooner the country left the gold standard,the sooner it recovered
- 7. WORLDWAR I BRITAIN INFLATION 2x FRANCE INFLATION 3x GERMANY INFLATION 4x UNITED STATES INFLATION 2x Warcontinued longer than predicted Countries printed notes
- 8. GIGANTIC OVERHANG OF INTERNATIONAL DEBTSBRITAIN WAR DEBT $4 billion FRANCE WAR DEBT $7 billion GERMANYUNITED STATES REPARATIONS $12 billion OWED $12.5 billion
- 9. BACK TO THEGOLD STANDARD
- 10. v Less than $150million in gold reserves remained v Stopped paying reparations v 6 governments failed in the past 5 years v Experiments with currency: Rentenmark 1923
- 11. 1924 FRANCE JP Morgan $100 million SCANDAL! GERMANY UNITEDSTATES Gold Standard Dawes Plan “A great circular flow of paper”
- 12. 1925 BRITAIN Churchill appointed chancellorof the exchequer Highest unemployment in Europe Return to the the gold standard ”Because he has no instinctive judgment to prevent him from making mistakes and because, lacking this instinctive judgment he was deafened by the clamorous voices of conventional finance” [Referring to Churchill’s decision to return to the gold standard]
- 13. 1926-1927 FRANCE War debt cut Bankingsystem dominated by fear BRITAIN FRANCE $200 million drained out of the Bank of England’s reserves
- 14. 1928 UNITED STATES – Very lowinterest rates – Bubble rising – Benjamin Strong dies
- 15. UNITED STATES STOCKBUBBLE A bull market Trading: America’s new pastime Market is a fantasy, but economy was okay Hoover’s jawboning “History, which has a painful way of repeating itself, has taught us that speculative overexpansion invariably ends in over- contraction and distress,” - Paul Warburg, 1929 (financier)
- 16. 1925-1929 FRANCE Large gold reserves& growing (French economy booming too) GERMANY Short on gold reserves UNITED STATES Large gold reserves BRITAIN Short on gold reserves NewYork sucking capital from abroad at a time when Europe was very dependent on American money
- 17.
- 18. WHATWAS DONE Conflict betweenBoard and the NewYork Fed • Banks would vote to raise rates and be overridden • Gridlocked • No leader Cut financing for broker’s loans & eventually raised rates “Wall Street has become a colossal suction pump, which is draining the world of capital and the suction is fast producing a vacuum over here.That is why bank rates are rising throughout Europe.That is the reason of the steady withdrawal of gold from the Bank of England.” – Viscount Rothermore in the Sunday Pictorial
- 19.
- 20. 1929-1931 Psychological impacts ofcrash profound • Drop in demand for expensive items • In the wake of the crash, banks began carrying larger cash balances as a precaution US MONETARY INTERVENTION - Hoover cut income tax rates • Not much effect - NY Fed at first injected money and cut rates - Banks failed, but Fed refused to act ENGLAND & GERMANY INITIALLY RELEAVED - Suffering from high unemployment - Cash now leaving the US
- 21. 1931-1933 BRITAIN LEAVES THEGOLD STANDARD Sterling devalued US FALLS INTO DEEP DEPRESSION § Unemployment § Hoarding § Bank and business closures § Banks seen as crooks Fed tried to inject money, but too late
- 22. EMERGENCY BANK ACT • Gives Roosevelt power over banking First day in office, closes banks • Shadow banks form FIRESIDE CHATS “I want to talk for a few minutes with the people of the United States about banking “ When banks reopened,people deposited money LEFT THE GOLD STANDARD • Financial markets rewarded the move
- 23. Schacht wanted torule Germany through Nazi party Hitler’s goals 1. Combat unemployment 2. Rearm Schacht used public works and printed money ECONOMY REBOUNDED During the war, Schacht was arrested by the Nazi party, freed by the Allies, arrested, tried and acquitted
- 24. RELEVANCE TODAY History repeatsitself, learn your lessons Decisions of a few people affect a lot of people Globalization and international connectedness is Injection of money can be too late Jawboning Shadow banking Politics