Money and Banking: What Everyone Should Know Michael K Salemi, Ph.D PUBLISHED BY: THE GREAT COURSES Corporate Headquarters 4840 Westfields Boulevard, Suite 500 Chantilly, Virginia 20151-2299 Phone: 1-800-832-2412 Fax: 703-378-3819 www.thegreatcourses.com Copyright © The Teaching Company, 2012 Printed in the United States of America This book is in copyright All rights reserved Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior written permission of The Teaching Company Credits begin on page 273 and constitute a continuation of the copyright page Michael K Salemi, Ph.D Professor of Economics and Chair of the Department of Economics University of North Carolina at Chapel Hill P rofessor Michael K Salemi is Professor of Economics and Chair of the Department of Economics at the University of North Carolina at Chapel Hill He has been a member of the faculty there since 1976 and a Professor of Economics since 1987 He has held three distinguished term professorships at UNC–Chapel Hill: Zachary Smith Professor of Economics from 1993 to 1996 and Bowman and Gordon Gray Professor of Economics from 1987 to 1990 and again from 2005 to 2010 As an undergraduate, Professor Salemi studied Economics at St Mary’s College in Winona, Minnesota, and received his bachelor’s degree in 1968 He earned master’s degrees in Economics from Purdue University in 1969 and from the University of Minnesota–Minneapolis in 1973, and he earned his doctorate in Economics from the University of Minnesota–Minneapolis in 1976 At UNC–Chapel Hill, Professor Salemi has taught a wide variety of undergraduate courses, including Money as a Cultural, Economic, and Social Institution, a ¿rst-year seminar he created He routinely teaches Principles of Economics and has taught Intermediate Macroeconomic Theory and Money, Banking, and Financial Markets To graduate students, Professor Salemi has taught Advanced Macroeconomic Theory, Monetary Theory, and advanced seminars in Macroeconomic Policy and Research on Monetary Policy Professor Salemi has completed a variety of international assignments during his career He was a Research Associate and Visiting Professor at The Graduate Institute in Geneva, Switzerland, from 1982 to 1983 and 1985 to 1987 and in 2001 and 2002 The Asian Development Bank selected him as a contributor to seminars on monetary policy for transitional economies in Beijing in 1991 and in Lao in 1992 Under the aegis of the Swiss State i Secretariat for Economic Affairs, he designed and delivered a technical assistance and training program at the State Bank of Vietnam in Hanoi in 2004 More recently, he was a visiting fellow at the Hong Kong Institute for Monetary Research in 2007 and again in 2008 Professor Salemi is the author of books and more than 60 published articles in macroeconomics, domestic and international monetary theory, and economic education He is the coauthor of Discussing Economics: A Classroom Guide to Preparing Discussion Questions and Leading Discussion and Teaching Innovations in Economics His journal publications have focused on formulation and estimation of optimal monetary policies, explanations for high unemployment in Hong Kong, and strategies for effectively teaching economics to undergraduate students Professor Salemi has had a career-long interest in economic education While a graduate student, he served as Assistant Director of the Center for Economic Education at the University of Minnesota–Minneapolis In 1977, he created the Teacher Training Program for graduate student instructors of economics at UNC–Chapel Hill, a program that is widely described as one of the best of its kind in the world Professor Salemi has taught in the program and has helped administer it throughout his career An acknowledged expert in economic education, Professor Salemi has served as an instructor, workshop director, and workshop program director for national programs in teacher education He was co-principal investigator for “Interactive Teaching in Undergraduate Economics Courses: Bridging the Gap between Current and Best Practices,” funded by the National Science Foundation from 2004 to 2010 The American Economic Association (AEA) selected him to serve on its Committee on Economic Education from1981 to 1988, 1990 to 2000, and 2001 to 2007 and to chair the committee from 1994 to 2000 More recently, the AEA chose him and William Walstad to design, administer, and teach a continuing education program in economic education Professor Salemi has been a featured speaker on the teaching of economics throughout his career He has given talks at many colleges and universities, ii including the University of Notre Dame, Michigan State University, Stanford University, Wellesley College, University of Kentucky, and Baylor University He has been selected as a featured presenter at many conferences devoted to economic education Professor Salemi has received numerous teaching awards From UNC– Chapel Hill, he received the Tanner Award for Teaching in 1980, the Instructor Excellence Award of the Young Executive Institute in 1986, the Economics Undergraduate Teaching Award in 1994 and again in 2000, and the Economics Graduate Teaching Award in 2002 The recipient of a number of national awards as well, Professor Salemi was awarded the Bower Medal in Economic Education in 1998 from the Council for Economic Education The National Association of Economic Educators awarded him the Villard Award for Research in Economic Education in 2001 The Gus A Stavros Center named him a Great Teacher in Economics in 2007 He is also listed in Marquis Who’s Who in America Professor Salemi is married to Ariana Pancaldo and is the father of Benjamin, Caitlin, and Chiara Salemi He is an avid squash player and also an amateur photographer and woodworker He enjoys hiking, particularly in the American Southwest Ŷ iii Table of Contents INTRODUCTION Professor Biography i Course Scope .1 LECTURE GUIDES LECTURE The Importance of Money LECTURE Money as a Social Contract LECTURE How Is Money Created? 16 LECTURE Monetary History of the United States 24 LECTURE Local Currencies and Nonstandard Banks .31 LECTURE How InÀation Erodes the Value of Money .37 LECTURE HyperinÀation Is the Repudiation of Money 44 LECTURE Saving—The Source of Funds for Investment 50 LECTURE The Real Rate of Interest 59 LECTURE 10 Financial Intermediaries 67 iv Table of Contents LECTURE 11 Commercial Banks 74 LECTURE 12 Central Banks 82 LECTURE 13 Present Value 89 LECTURE 14 Probability, Expected Value, and Uncertainty 96 LECTURE 15 Risk and Risk Aversion 103 LECTURE 16 An Introduction to Bond Markets 109 LECTURE 17 Bond Prices and Yields 117 LECTURE 18 How Economic Forces Affect Interest Rates 124 LECTURE 19 Why Interest Rates Move Together 131 LECTURE 20 The Term Structure of Interest Rates .139 LECTURE 21 Introduction to the Stock Market .146 LECTURE 22 Stock Price Fundamentals 153 LECTURE 23 Stock Market Bubbles and Irrational Exuberance 159 v Table of Contents LECTURE 24 Derivative Securities .166 LECTURE 25 Asymmetric Information 173 LECTURE 26 Regulation of Financial Firms 179 LECTURE 27 Subprime Mortgage Crisis and Reregulation 185 LECTURE 28 Interest Rate Policy at the Fed and ECB 192 LECTURE 29 The Objectives of Monetary Policy 197 LECTURE 30 Should Central Banks Follow a Policy Rule? 202 LECTURE 31 Extraordinary Tools for Extraordinary Times 209 LECTURE 32 Central Bank Independence 217 LECTURE 33 The Foreign Exchange Value of the Dollar .223 LECTURE 34 Exchange Rates and International Banking 232 LECTURE 35 Monetary Policy Coordination .239 vi Table of Contents LECTURE 36 Challenges for the Future .246 SUPPLEMENTAL MATERIAL Glossary 253 Bibliography 258 Credits 273 vii viii ——— Money Mischief: Episodes in Monetary History New York: Harcourt Brace Javanovich, 1992 Friedman looks at a variety of episodes in economic history with an eye toward convincing the reader that inÀation is always due to excessive growth in the supply of money ——— “The Role of Monetary Policy.” American Economic Review 58, no (1968): 1–17 In his presidential address to the American Economic Association, Friedman explains why monetary policy cannot hold the market above “natural” rates of employment for long periods of time He also argues that the most important objective that well-designed monetary policy can accomplish is to keep changes in the stock of money from becoming a major disturbance to economic stability Friedman, Milton, and Anna J Schwartz A Monetary History of the United States, 1867–1960 New York: National Bureau of Economic Research, 1963 A modern classic, in which Friedman and Schwartz track the evolution of the money stock and ¿nancial institutions in the United States from the greenback period to the period after World War II The chapter on the Great Depression is valuable reading for anyone who is interested in studying monetary policy during economic crises Bibliography Friedman, Milton, and L J Savage “The Expected-Utility Hypothesis and the Measurability of Utility.” Journal of Political Economics 60, no (1952): 463–74 In this famous article, the authors address the question of how to explain a decision maker who buys both insurance and lottery tickets The case is interesting because the former decision suggests risk aversion while the latter suggests risk loving Galbraith, John K Money: Whence It Came, Where It Went Boston: Houghton MifÀin Company, 1995 A highly readable history of money from the time, 4,000 years ago, when individuals began exchanging precious metals for goods The book ends with an assessment of the state of the U.S dollar in 1975, when Galbraith was originally writing Glover, Paul “A History of Ithaca Hours.” January 2000, http://www paulglover.org/0001.html The fascinating story of one of the longest-lasting and most successful local currencies—Ithaca Hours 264 Greider, William Secrets of the Temple: How the Federal Reserve Runs the Country New York: Simon and Schuster, 1987 Although the book provides a history of the Federal Reserve under Paul Volcker, it also explores the implications of Federal Reserve power from the point of view that decisions about money and ¿nancial institutions are political and social The book is highly relevant for anyone interested in questioning the independence of the Federal Reserve Hammond, Bray Banks and Politics in America from the Revolution to the Civil War Princeton, NJ: Princeton University Press, 1957 This fascinating book covers the history of banks and the interaction of banking policy and politics in the United States from the time of the American Revolution to the Civil War It explains the debate that surrounded the First and Second Banks of the United States and how variations in the vision of the Founding Fathers found their way into debates about the appropriate monetary arrangements to be established in our nation Hanke, Steve H., and Alex K F Kwok “On the Measurement of Zimbabwe’s HyperinÀation.” Cato Journal 29, no (2009): 353–364 The authors use the concept of purchasing power parity to estimate rates of inÀation in Zimbabwe, an effort necessitated by a Zimbabwe government decision to stop reporting inÀation statistics The paper is interesting and the data are fascinating Hennessy, Elizabeth Coffee House to Cyber Market: 200 Years of the London Stock Exchange London: Ebury Press, 2001 This interesting volume is not about stock prices or volumes of shares It is a history of the people and places who developed the exchange Hennessy explains how the exchange got its start in a coffeehouse located at what was later called Exchange Alley Heyne, Paul The Economic Way of Thinking 9th ed New York: Prentice Hall, 2000 One of the most interesting and readable principles-of-economics texts available The chapter on the supply of money is particularly relevant for those interested in the basics of the process through which money is created 265 Jackson, Kevin, ed The Oxford Book of Money New York: Oxford University Press, 1995 Provides reÀections on the nature of money from such thinkers as Dante and Milton, as well as social philosophers, including Veblen, Smith, Marx, and Keynes Jevons, William Stanley Money and the Mechanism of Exchange New York: A.M Kelley Bookseller, 1964 The source for Jevons’s famous phrase that a successful barter transaction requires a “double coincidence” of wants Judd, John P., and Glenn D Rudebusch “The Goals of U.S Monetary Policy.” Federal Reserve Bank of San Francisco Economic Letter 99, no.4 (1999) http://www.frbsf.org/econrsrch/wklyltr/wklyltr99/el99-04.html The authors provide a straightforward and clear statement about the goals of monetary policy implicit in the Fed’s legislative mandate They also discuss current debates about revisions to that mandate Kennedy, Peter E “Eight Reasons Why Real versus Nominal Interest Rates Is the Most Important Concept in Macroeconomics Principles Courses.” American Economic Review 90, no (2000): 81–84 The article does an excellent job of explaining the importance of the real rate of interest to an understanding of basic macroeconomics and monetary policy Very interesting and clearly written Bibliography Kolb, Robert W Financial Derivatives: Pricing and Risk Management Hoboken, NJ: John Wiley and Sons, 2010 If I were to keep but one book about ¿nancial derivatives on my shelf, this would be that book It provides an overview of the types of ¿nancial derivatives, a description of the markets in which derivatives are traded, an explanation of how derivatives are used to hedge risk, and a series of chapters devoted to different derivative products Kolb, Robert W., and Ricardo J Rodriguez Financial Institutions Cambridge, MA: Blackwell, 1996 The book includes very readable chapters on the stock and bond markets and chapters on depository institutions and other ¿nancial intermediaries Unfortunately, this source has not been updated since 1996 266 Krugman, Paul R., and Maurice Obstfeld International Economics: Theory and Policy 5th ed Reading, MA: Addison Lesley Longman, 2000 A technically sophisticated textbook for courses in international economics Kydland, Finn, and Edward C Prescott “Rules Rather than Discretion: The Inconsistency of Optimal Plans.” Journal of Political Economy 85, no (1977): 473–491 In this famous paper, the authors explain the advantages to a policy authority of adhering to a rule rather than maintaining discretion to react differently to each policy situation Malkiel, Burton G A Random Walk Down Wall Street: Including a LifeCycle Guide to Personal Investing 6th ed New York: Norton, 1996 Perhaps the most famous book ever written about the stock market It explains the ef¿cient market hypothesis, which holds that any information useful for predicting future stock price values is already built into the current stock price value Meulendyke, Ann-Marie U.S Monetary Policy and Financial Markets New York: Federal Reserve Bank of New York, 1998 The volume is a detailed but highly readable explanation of how monetary policy works It provides a short history of U.S monetary policy, an explanation of how policy affects banks and ¿nancial markets, and a series of chapters that explain the Federal Open Market Committee and the Trading Desk at the New York Federal Reserve The volume also considers international aspects of monetary policy Mishkin, Frederic S “Global Financial Instability: Framework, Events, Issues.” The Economics of Money, Banking, and Financial Markets 8th ed Boston: Pearson Addison Wesley, 2007 One of the best available texts used to teach undergraduate courses in money, banking, and ¿nancial markets ——— Journal of Economic Perspectives 13, no (1999): 3–20 Provides an assessment of the causes, consequences, and transmission mechanisms associated with episodes of ¿nancial market instability that spread across countries Mishkin focuses on Mexico and East Asian countries between 1994 and 1998 267 ——— “Symposium on the Monetary Transmission Mechanism.” Journal of Economic Perspectives 9, no (1995): 3–10 Provides an overview of the special issue of the Journal of Economic Perspectives dedicated to a study of how monetary policy works The paper explains various “channels” through which the effects of monetary policy are distributed to economic decisions These include the effect of monetary policy on interest rates, asset prices, exchange rates, and the availability of credit ——— “What Should Central Banks Do?” Federal Reserve Bank of St Louis Review, November/December 2000: 1–13 Mishkin summarizes recent analysis that guides central bank practice and develops and explains a list of guiding principles for central banks Morgan, Donald P., and Kevin J Stiroh “Too Big to Fail after All These Years.” Federal Reserve Bank of New York Staff Report no 220, September 2005 http://www.newyorkfed.org/research/staff_reports/sr220.html Looks at interest rate spread data for evidence that “too big to fail” leads to an erosion of market discipline The paper is a preliminary technical study, but most of the analysis can be understood by non-economists Mundell, Robert A “A Theory of Optimum Currency Areas.” American Economic Review 51, no (1961): 657–665 In this famous article, Nobel laureate Robert Mundell investigates conditions under which a group of countries are better off adopting a common currency than they would be if they maintained currency independence Bibliography Norris, Frank The Pit: A Story of Chicago New York: Doubleday, Page and Company, 1903 This classic work of ¿ction revolves around trading in the grain pits at the Chicago Board of Trade in the early days of the 20th century Obstfeld, Maurice “The Global Capital Market: Benefactor or Menace?” Journal of Economic Perspectives 12, no (1998): 9–30 The effects of the Asian ¿nancial crisis of 1997 and 1998 were not limited to Asia but rebounded around the globe, because ¿nancial markets are more global in scope than ever before In this article, Obstfeld examines the bene¿ts and costs of global ¿nancial markets 268 Orsingher, Roger Banks of the World New York: Walker and Company, 1967 Particularly interesting is the ¿rst chapter of this book, which provides a history of banking from Babylonian times Paulson, Henry M., Jr On the Brink: Inside the Race to Stop the Collapse of the Global Financial System New York: Business Plus, 2010 Paulson was secretary of the Treasury under President George W Bush This is his account of the steps taken by Congress, the Treasury, and the Federal Reserve in response to the subprime mortgage crisis Plenty Currency Cooperative “About the Plenty.” http://theplenty.org/about Offers facts about the Plenty, a local currency that circulates in the Piedmont area of North Carolina Poole, William “The Fed’s Monetary Policy Rule.” Federal Reserve Bank of St Louis Review 88, no (2006): 1–11 In this article, Poole explains that the federal funds rate, the instrument of monetary policy, closely approximated values that would have been predicted by the monetary policy rule of John Taylor Radford, R A “The Economic Organization of a P.O.W Camp.” Economica 12 (November 1945): 189–201 In a classic and fascinating article, Radford describes his experiences as a prisoner during World War II and his observations on how markets, trading systems, and “cigarette money” sprung up in the POW camp Redish, Angela “Anchors Aweigh: The Transition from Commodity Money to Fiat Money in Western Economies.” Canadian Journal of Economics 26, no (1993): 777–795 Redish uses the metaphor of an anchor and its chain to represent the connection between gold and the world supply of money She argues that limitations in the supply of gold led, on many occasions, to attempts to “lengthen the chain” but that ¿nally the chain was broken when the United States abandoned the gold standard Rockoff, Hugh “The ‘Wizard of Oz’ as a Monetary Allegory.” Journal of Political Economy 98, no (1990): 739–760 Reading this article is as much fun as economics has to offer Rockoff argues that Frank Baum’s classic 269 book is an allegory and links key features of the plot and key characters to ¿gures, such as William Jennings Bryan, who were involved with the free silver movement at the end of the 19th century Readers of Baum’s book will remember that Dorothy’s slippers are not ruby but silver; the plot thickens Russell, Steven “Understanding the Term Structure of Interest Rates: The Expectations Hypothesis.” Federal Reserve Bank of St Louis Review 74, no (1992): 36–50 Clearly and intuitively explains the connection between short- and long-term bond yields implied by the expectations hypothesis and provides a clear interpretation of the shape of the yield curve Salemi, Michael K “HyperinÀation.” In The Concise Encyclopedia of Economics Library of Economics and Liberty, http://www.econlib org/library/Enc/HyperinÀation.html De¿nes hyperinÀation, provides 20th-century examples, and explains the causes and consequences of hyperinÀations Bibliography Sargent, Thomas J “The Ends of Four Big InÀations.” In Rational Expectations and InÀation New York: Harper & Row Publishers, 1986 In this essay, Sargent argues that monetary reform alone is insuf¿cient to end hyperinÀations What is needed is ¿scal reform suf¿cient to make monetary reform credible Sargent uses data for four hyperinÀations that occurred during the interwar period to illustrate and support his thesis Sargent, Thomas J., and Neil Wallace “Some Unpleasant Monetarist Arithmetic.” In Rational Expectations and InÀation New York: Harper & Row Publishers, 1986 In this essay, Sargent and Wallace argue that there is a fundamental connection between monetary and ¿scal policy that is rooted in the accounting requirement that government budgets must balance When ¿scal authorities run persistent de¿cits, monetary authorities come under great pressure to monetize the country’s debt When monetary authorities credibly signal that they will not monetize, ¿scal authorities realize that they must offset current de¿cits with future surpluses Schlossberg, Boris “Common Questions about Currency Trading,” Investopedia, http://www.investopedia.com/articles/forex/06/SevenFXFAQs asp The title says it all 270 Sharpe, William F Investments Englewood Cliffs, NJ: Prentice-Hall, 1978 In this book, 1990 Nobel laureate William Sharpe sets out and explains the capital asset pricing model Shiller, Robert J Irrational Exuberance 2nd ed Princeton, NJ: Princeton University Press, 2005 Alan Greenspan coined the term, but Robert Shiller made the case that world ¿nancial markets have all too frequently experienced irrational exuberance of suf¿cient magnitude to inÀate asset price bubbles In the ¿rst part of the book, Shiller argues that the United States has experienced bubbles in both equity and real estate prices In the remainder of the book, he analyzes why bubbles inÀate and what members of society can individually and collectively about bubbles Smith, Adam An Inquiry into the Nature and Causes of the Wealth of Nations New York: The Modern Library, 1937 This is the classic of classics for economists In the early chapters, Smith explains how specialization is the key to the creation of wealth, how trade is necessary for specialization to occur, and how money is essential for trade Smith, Gary Money and Banking Reading, MA: Addison Wesley, 1982 A money and banking text that did not endure in the marketplace; however, chapter provides a nice overview of commodity and ¿at monies Solomon, Lewis D Rethinking Our Centralized Monetary System: The Case for a System of Local Currencies Westport, CT: Praeger Publishers, 1996 Solomon analyzes the history of monetary institutions in the United States and concludes that serious reform is necessary The type of reform he favors is to replace our national ¿at currency with a system of local currencies Stat Trek “Statistics Tutorial: Basic Probability.” http://stattrek.com/ Lesson1/Probability.aspx Stern, Gary H., and Ron J Feldman Too Big to Fail: The Hazards of Bank Bailouts Washington, DC: Brookings Institution Press, 2004 The authors argue that not enough has been done to counter the market expectation that big banks are too big to fail and will receive special government support if a 271 ¿nancial crisis should occur The authors explain why the problem is serious and of increasing importance Stiglitz, Joseph E., and Andrew Weiss “Credit Rationing in Markets with Imperfect Information.” American Economic Review 71, no (1981): 393–410 A technically challenging paper that explains why banks may not respond to a shortage of lendable funds by raising the rate they charge to borrow The paper builds on Akerlof’s concept of asymmetric information Sundaresan, Suresh Micro¿nance: Emerging Trends and Challenges Northampton, MA: Edward Elgar, 2008 A collection of essays on current challenges and trends in micro¿nance The essays study the integration of capital markets with micro¿nance, securitization of micro-credit-backed securities, technological innovations in micro¿nance, and regulatory challenges to recent developments in micro¿nance There is also an essay on the impact of gender empowerment caused by micro¿nance Taylor, John B “Discretion versus Policy Rules in Practice.” CarnegieRochester Conference Series on Public Policy 39 (1993): 195–214 Examines how research on policy rules can be applied to a practical policymaking environment This is the paper in which Taylor ¿rst presents the monetary policy rule that now bears his name Bibliography ——— “A Historical Analysis of Monetary Policy Rules.” In Monetary Policy Rules, edited by John B Taylor Chicago: University of Chicago Press, 1999 Examines episodes of monetary policy from the perspective of research on the bene¿ts of monetary policy rules Taylor documents that the U.S monetary policy rule for interest rates has changed dramatically through time and that those changes have mattered to the performance of the U.S economy Unterguggenberger, Michael “The End of the Woergl Experiment.” Reinventingmoney.com, http://www.reinventingmoney.com/documents/ worgl.html The source of the famous story about the town in Bavaria that launched a local currency during the Great Depression 272 Credits Music Provided By: Getty Images Sound Effects Provided By: Digital Juice Graphs and Charts Provided By: Alesina, Alberto and Lawrence H Summers, "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking 25 (May 1993) Copyright 1993 by The Ohio State University Press Reproduced with permission of Blackwell Publishing Ltd Bloomberg Bond Market Overview, WSJ, 11/18/2010 Reprinted with permission of The Wall Street Journal, Copyright © 2012 Dow Jones & Company, Inc All Rights Reserved Worldwide CME Group Crowe, Christopher and Ellen E Meade, “The Evolution of Central Bank Governance around the World, Journal of Economic Perspectives, 21, 4, 2007, 69-90 Figure and Table Used with permission Data based on OECD (2010), “National Accounts at a Glance”, OECD National Accounts Statistics (database), http://dx.doi.org/10.1787/data00369-en accessed 3/16/2011 Data based on OECD (2011), “OECD Economic Outlook No 89”, OECD Economic Outlook: Statistics and Projections (database), http://dx.doi org/10.1787/data-00539-en , accessed 3/16/2011 Federal Reserve 273 Federal Reserve Bank of Atlanta Economic Review Federal Reserve Bank of Philadelphia FRED, Federal Reserve Economic Data, Federal Reserve Bank of St Louis Graph from International Finance: Theory and Policy Some rights reserved Used with permission of Flat World Knowledge, Inc www.Àatworldknowledge.com Market Breadth, WSJ, 11/18/2010 Reprinted with permission of The Wall Street Journal, Copyright © 2012 Dow Jones & Company, Inc All Rights Reserved Worldwide Market Rates Online Michael Salemi Mishel, Lawerence, Jared Bernstein, and Sylvia Allegretto, The State of Working America 2006–2007 An Economic Policy Institution Book Ithica, NY: ILR Press, an imprint of Cornell University Press, 2007 Poole, William, “The Fed's Monetary Policy Rule.” Federal Reserve Bank of St Louis Review, January/February 2006, 88(1), pp 1–11 Copyright 2006, Federal Reserve Bank of St Louis Shiller, Robert J.; Irrational Exuberance, Second Edition 2005 © Princeton University Press Reprinted by permission of Princeton University Press Credits Source of “Asset-backed Securities Market”: Federal Reserve Bank of San Francisco http://www.frbsf.org/econanswers/response_q3more.htm The opinions expressed in this course not necessarily reÀect the views of the management of the Federal Reserve Bank of San Francisco, or of the Board of Governors of the Federal Reserve System 274 Source of “Fed Lending to Primary Dealers”: Federal Reserve Bank of San Francisco http://www.frbsf.org/econanswers/response_q1more.htm The opinions expressed in this course not necessarily reÀect the views of the management of the Federal Reserve Bank of San Francisco, or of the Board of Governors of the Federal Reserve System Standard & Poor’s and FiServ © StockCharts.com Chart courtesy of StockCharts.com Top Banks in the World: Bankersalamanc.com, December 31, 2010 © Reed Business Information Limited 2011 These bank rankings are compiled from balance sheet information included on Bankersalmanac.com available at December 31, 2010 All ¿gures have been converted into US dollars at the rate applicable at the date of that balance sheet Great care has been taken to ensure the information’s accuracy but Bankers’ Almanac can accept no responsibility for any losses or damages arising from any errors or omissions For up-to-date rankings, go to http://www.bankersalmanac.com/ addcon/infobank/bank-rankings.aspx USGS World Gold Council 275 Von Muralt, Alex “The Worgl Experiment with Depreciating Money.” Reinventingmoney.com, http://www.reinventingmoney.com/documents/ worgl.html Discusses a feature of the Wörgl experiment that was designed to ensure that the citizens who received the local currency would spend it quickly, thereby stimulating the economy Woodward, Bob Maestro: Greenspan’s Fed and the American Boom New York: Touchstone, Simon and Schuster, 2000 Woodward does a nice job of chronicling Alan Greenspan’s career as chairman of the Board of Governors of the Federal Reserve Among the book’s insights is that Greenspan was able to convince President Clinton that a tax increase would make it easier for the Greenspan Fed to keep interest rates low Credits Wright, Russell O Chronology of the Stock Market Jefferson, NC: McFarland & Company, 2001 Provides an annotated chronology of the New York stock market that indicates important events of both a statistical and an organizational nature It is useful for those who are searching for facts, such as when the NASDAQ ¿rst went over 500 276 Notes Notes ... Credits 273 vii viii Money and Banking: What Everyone Should Know Scope: M ost of us like money and believe we should have more of it Economists think of money as an agreement—a social... basic de¿nition of money and traces the evolution of money through ¿ve stages: barter, commodity money, coined money, paper money backed by coins, and ¿at money, which is what we use today Throughout... several important questions: What threatens the value of our money? Why is it important to preserve the value of money, and what can a central bank to achieve that goal? And given that a central