I was listening to this great podcast on EconTalk with Charles Calomiris and Stephen Haber. You should listen to the whole thing, but what really interested me was the in-depth discussion about banking in the USA and how it has developed over time. The interview focuses on Charles and Stephen’s new book “Fragile by Design”, which discusses how the US banking system is inherently unstable because of the strange way in which it has developed over the years. Anyone who has read my paper on Monetary Realism will find many overlapping thoughts here. In essence:
- The US banking system was born out of a fragmented and independent set of individual banks that were forced into a more nationalized system as time passed and the US economy became more interconnected.
- These independent entities were the primary issuers of the medium of exchange even before there was a Fed system and national banking laws.
- Banking in the USA, has remained less regulated and much more independent of government than in many other countries.
- Despite its independence, banking is central to government operations and the health of the US economy. Therefore, despite its independence of government, it is an industry that is unusually dependent on government (and vice versa).
This is an interesting look at the history of banking in the USA. If you don’t already understand the MR framework this interview will help put some pieces of the puzzle together for you.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.