the February 2017 issue is live

Comments

• PRESSmUP

  February 2017

  Ted normally announces the arrival of the most current commentary...but this was a most reasonable effort in his absence.
  
  Thanks
• hank

  February 2017 edited February 2017

  (From David's opening remarks): So why the rally? Mostly, I suspect, because people have become unhinged by the circus in D.C. Peggy Noonan, Reagan’s best speech-writer and doyen of the country-club Republicans, frets “we are living through big history and no one here knows where it’s going or how this period ends… Mr. Trump has overloaded all circuits. Everything is too charged, nothing feels stable. ‘Nothing is stable,’ [a prominent friend] replied” (“In Trump’s Washington, Nothing Feels Stable,” WSJ, 2/4-5/17). In such moments of great uncertainty, crowds surge. (I think about the news reports of people crushed to death against the doors of a burning theater as the crowd behind them rushes without thought or perception.)
  ---
  
  Yep - A potential Supreme Court test case of Presidential Powers arising within the first month in office? Has to be some kind of record. All I would wish for would be to be around in 100 years to read the history books on this period.
• David_Snowball

  February 2017

  Hi, hank.
  
  I was pondering that very point ("in a 100 years") on the drive in this morning. At least in terms of political culture, the last shift this disruptive might have been when Andrew Jackson came to power in 1829. Mr. Jackson represented a sharp break from both the policies and style of the dominant political culture.
  
  There's a particularly interesting episode in Jackson's tenure; he triggered an economic boom by dismantling the Second Bank of the United States, which functioned as the era's regulator of financial markets. The surge of economic activity rolled on to wild excesses in the financial markets, defaults, eventually a strong government (over)reaction and collapse in the financial panic of 1837 - 44.
  
  Mr. Trump has endorsed with comparison, in part by hanging a picture of Mr. Jackson behind his desk in the Oval Office.
  
  William Jennings Bryan (1900, 1908) might have been a similarly transformative if he'd won. Huey Pierce Long, likewise, if he hadn't been assassinated and had beaten FDR in the '36 primary.
  
  Just pondering,
  
  David
  
  
• SandraWisdom

  February 2017

  David_Snowball said:

  Hi, hank.
  
  I was pondering that very point ("in a 100 years") on the drive in this morning. At least in terms of political culture, the last shift this disruptive might have been when Andrew Jackson came to power in 1829. Mr. Jackson represented a sharp break from both the policies and style of the dominant political culture.
  
  There's a particularly interesting episode in Jackson's tenure; he triggered an economic boom by dismantling the Second Bank of the United States, which functioned as the era's regulator of financial markets. The surge of economic activity rolled on to wild excesses in the financial markets, defaults, eventually a strong government (over)reaction and collapse in the financial panic of 1837 - 44.
  
  Just pondering,
  
  David
  
  

  The Second Bank of America only had a 20 year charter that expired in Jan 1836. During its tenure there were 4 recessions. The Panic of 1837 was caused by factors that began in 1834.
  https://en.wikipedia.org/wiki/Panic_of_1837
  
  While looking for parallels between Trump and Jackson might be made; the one with the Second Bank of America is not one of them. If you want to ponder something try this one: Why does Trump confound the elite, news media and Hollywood? His history and the things he said during the election and after would have mortally wounded any other politician.
  
  http://www.history.com/topics/jacksonian-democracy
  
  "It has confounded some scholars that so much of this ferment eventually coalesced behind Andrew Jackson..."
  
  The real test of Trump affect on the future will be if he gets a second term. If he gets one term and a Democrat wins, his changes will be superficial and short term. The politicians will look at him as an exception and not a mandate for change. If he gets a second term then even his opponents will have to move closer to his positions.
  
  
  
  
• Old_Joe

  February 2017

  It's the "Second Bank of the United States", not the "Second Bank of America": one of those is more than enough. Jackson may not have personally "dismantled" the Second Bank of the United States, but he certainly refused to "remantle" (sic) it, and while that action may not have been the sole precipitating factor in the subsequent monetary chaos, it most definitely contributed to it.
• David_Snowball

  February 2017 edited February 2017

  Hi, Sandra.
  
  The panic of 1837 was one of the major financial events of the 19th century, at least as far as the emerging U.S. economy was concerned; about a hundred actors were moving simultaneously and independently, and we have terrible documentation concerning most of them. (It's the sort of story that I love playing out when I'm teaching the research course on Historiography.)
  
  The 2nd Bank of the U.S., indeed, had a 20 year charter. It served, literally, as the bank of the United State. The federal government deposited its cash into, and paid its bills out of, the bank. As a result, the bank had substantial (huge, for the day) cash reserves that it could lend out to other banks. By controlling that lending, the Bank of the U.S. served to discipline the rest; "get crazy and we cut you off." Jackson was pissed, in part, because the Bank of the U.S. discriminated, in his judgment, against frontier financial institutions. When he became president he took two sets of actions against the bank. He refused to renew its charter (effectively breaking its monopoly power) and he withdrew the federal reserves from the Bank of the U.S. and deposited them in other banks that he thought would be more pro-growth. (Or, his critics charged, would lend to speculators.) In particular, that moved hard currency away from the more established banks in New York City, our emerging financial center, and into the hands of folks in ... say, Louisville or St. Louis.
  
  The net effect was to remove one brake on the system and add fuel to it.
  
  Then other stuff happened. Reduced liquidity in the central banks. Minor British banking crisis which led them to demand specie for US banks. Land and financial speculation. Jackson's demand that bills owed to the federal government be paid in gold or silver (technically, "specie") as a way to check land speculation.
  
  One of the dullest, but most careful, bits of economic historical scholarship is Peter Rousseau's essay for the National Bureau of Economic Research, entitled "Jacksonian Monetary Policy, Specie Flows, and the Panic Of 1837" (2011). After 40 numbingly careful pages of financial flow analyses, he concludes:

  The Panic of 1837 was the culmination of a series of policy shifts and unanticipated disturbances that shook the young U.S. economy at the core of its financial structure -- the banks of New York City. Over the nine months leading up to the crisis, the specie reserves of these banks came under increasing strain as they reacted to legislation designed to achieve a “political” distribution of the surplus balances among the states and an executive order allegedly aimed at ending speculation in the public lands. With much of the nation’s specie diverted from its commercial center, the prospect of shifts in specie demand both domestically and from abroad combined with a break in land prices to render the panic inevitable.

  So, not the refusal to recharter the Bank per se but the effects of defunding it?
  
  And I certainly agree that the test for Mr. Trump, as for Mr. Carter before him, is the sticking power of his initiatives. That, in part, might be driven by whether he can drive the election of a lot of like-minded persons in the Congressional elections of 2018.
  
  For what that's worth,
  
  David
  
• SandraWisdom

  February 2017 edited February 2017

  David_Snowball said:

  Hi, Sandra.
  
  The panic of 1837 was one of the major financial events of the 19th century, at least as far as the emerging U.S. economy was concerned; about a hundred actors were moving simultaneously and independently, and we have terrible documentation concerning most of them. (It's the sort of story that I love playing out when I'm teaching the research course on Historiography.)
  
  The 2nd Bank of the U.S., indeed, had a 20 year charter. It served, literally, as the bank of the United State. The federal government deposited its cash into, and paid its bills out of, the bank. As a result, the bank had substantial (huge, for the day) cash reserves that it could lend out to other banks. By controlling that lending, the Bank of the U.S. served to discipline the rest; "get crazy and we cut you off." Jackson was pissed, in part, because the Bank of the U.S. discriminated, in his judgment, against frontier financial institutions. When he became president he took two sets of actions against the bank. He refused to renew its charter (effectively breaking its monopoly power) and he withdrew the federal reserves from the Bank of the U.S. and deposited them in other banks that he thought would be more pro-growth. (Or, his critics charged, would lend to speculators.) In particular, that moved hard currency away from the more established banks in New York City, our emerging financial center, and into the hands of folks in ... say, Louisville or St. Louis.
  
  The net effect was to remove one brake on the system and add fuel to it.
  
  Then other stuff happened. Reduced liquidity in the central banks. Minor British banking crisis which led them to demand specie for US banks. Land and financial speculation. Jackson's demand that bills owed to the federal government be paid in gold or silver (technically, "specie") as a way to check land speculation.
  
  One of the dullest, but most careful, bits of economic historical scholarship is Peter Rousseau's essay for the National Bureau of Economic Research, entitled "Jacksonian Monetary Policy, Specie Flows, and the Panic Of 1837" (2011). After 40 numbingly careful pages of financial flow analyses, he concludes:
  
  

  The Panic of 1837 was the culmination of a series of policy shifts and unanticipated disturbances that shook the young U.S. economy at the core of its financial structure -- the banks of New York City. Over the nine months leading up to the crisis, the specie reserves of these banks came under increasing strain as they reacted to legislation designed to achieve a “political” distribution of the surplus balances among the states and an executive order allegedly aimed at ending speculation in the public lands. With much of the nation’s specie diverted from its commercial center, the prospect of shifts in specie demand both domestically and from abroad combined with a break in land prices to render the panic inevitable.

  So, not the refusal to recharter the Bank per se but the effects of defunding it?
  
  And I certainly agree that the test for Mr. Trump, as for Mr. Carter before him, is the sticking power of his initiatives. That, in part, might be driven by whether he can drive the election of a lot of like-minded persons in the Congressional elections of 2018.
  For what that's worth,
  
  David
  

  I think we have to consider that there were 4 recessions during the bank's charter that it did not prevent. And while there were Jackson's contributing factors there were other domestic and international factors e.g. Bank of England raising interest rates. My point being is that the Bank of US/Jackson/Panic of 1837 and Trump economics/Trump/Future economics analogy is a poor one.
  
  The presidential mid term congressional elections are often touted by the pundits as a referendum on the president. It is doubtful if they are. If they are then the incumbent party is not liked by the voters as "The party of the incumbent president tends to lose ground during midterm elections: over the past 21 midterm elections, the President's party has lost an average 30 seats in the House, and an average 4 seats in the Senate; moreover, in only two of those has the President's party gained seats in both houses."
  https://en.wikipedia.org/wiki/United_States_midterm_election
  
  Considering that the Republicans currently have a majority in both chambers; it is a good bet they will lose seats, as is normal for the midterms. However, if they were to gain seats or hold onto the majority I think that could be considered a win for Trump as it would be going against the historical record.