What’s inside America’s banks?

A history lesson on our nation’s escapade with ending centralized banking, courtesy of “From Sea to Shining Sea” by Peter Marshall and David Manuel.
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After the ratification of the Constitution and a Federal election, Congress chartered a Federal Bank of the United States under Secretary of the Treasury Alexander Hamilton. In a bold and courageous move, Hamilton redeemed every Continental dollar at full face value with new Federal dollars backed by hard currency. This new money soon earned the approbation, “sound as a dollar” and made good, in effect, on the promissory notes of the pre-Constitution government. Thus did American currency finally stabilize under Federal banking policies so conservative that foreign nations and private investors had the confidence to do business with the new republic for the first time.

But Americans of the early nineteenth century did not appreciate the need for fiscal stability… They needed to take advantage of once-in-a-lifetime opportunities, to do a million and one things now…The pressure on the Bank of the United States to expand the money supply and loosen its credit policies became intense…

Nineteen years before, when the Democratic Republicans swept into power, they determined to get rid of every Federalist in office and every Federal institution… In 1811, the bank’s charter expired, and a Democratic Republican-dominated Congress refused to renew it…

To be sure, the state banks flourished and charters for new ones seemed to be granted to all comers, but they all continued to adhere to the conservative policies established by the Bank of the United States-at first. As the pressure for money continued to build, however, the temptation to loosen credit and to print more notes than they could support with hard currency or United States dollars soon proved overwhelming. The further away from Federalist New England a state was, the more “democratic” its lending policies were likely to be – and the more its notes would inevitably be discounted…those in the West and Southwest, where land speculation was most rife, seemed “weird to the point of madness.”

Finally, Congress grudgingly admitted that there had to be a national bank if the country were to survive, and in 1816, they chartered the Second Bank of the United States. But this time, it would be run by Democratic Republicans. In New England, the bank’s methods remained conservative-forced to be by the financiers who did business there. But in the South and West, it was a different story. There the Bank behaved much as did the state banks around it-making speculative loans and extending unrestricted credit.

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I’ve excluded the next paragraphs which document the results of the “Democratic Republicans” solely due to length. Suffice it to say they were not at all pretty.

MelonCollie on January 14, 2013 at 11:06 PM