Meet the Masters – Dr. Richard Sylla

 

Trevor Chambers:

Hi, it’s March 20th 2020. This is Trevor Chambers, with Olde Raleigh Financial Group. And we are recording for a series called, Meet The Masters, where we interview different subject matter experts. And today, I have the great honor of hosting Dr. Richard Sylla. He is a Professor Emeritus of Economics, and is a former Henry Kaufman Professor of History of financial Institutions and Markets, at the New York University Stern School of Business.

He teaches courses in financial history, economic and business history, of the United States, and comparative enterprise systems. Dr. Sylla, welcome to Meet The Masters with Olde Raleigh Financial.

Dr. Sylla:

Glad to be with you, Trevor.

Trevor Chambers:

Excellent. We had a little technical difficulty, but I think we’re off to the races now. So anyway, today is a very interesting time. And I want to talk about lots of things, but as I noted with the date of March 20th, we are about a week, or a week and a half into COVID19, Coronavirus breakout. So interesting times, obviously, and that being said, Professor, so where are you right now … Where are you and your lovely wife right now?

Dr. Sylla:

We are in our country house, in Hopkinson, New Hampshire. This is a small township, just west of Concord, New Hampshire, the state capital. We were in New York a couple of weeks ago, but we’re glad to be back in New Hampshire now, because New York has almost shut down, and is having a lot of cases of the virus. New Hampshire is, I think a much safer place to be right now.

Trevor Chambers:

Absolutely. I like that you’re tucked away out there, it’s very good. So I’d like to start … tell me about you. Tell me about your background, and how you arrived at where you are today.

Dr. Sylla:

I’m a mid-westerner. I grew up in the suburbs of Chicago, and it happened to have a very good high school that I went to. And I had a course in economics in high school, in the late 1950s, and that got me interested in the study of economics. So I declared that I wanted to be an economics major before I ever got to college, and I became one. And I did pretty well in it. I guess, I would say I liked economics, and economics liked me. So I went on to graduate school and got a master’s and a PhD. Then I embarked on an academic career of … I guess it was nearly 50 years. Moved to North Carolina, at the end of the 1960s to take up a position at NC State University, where I taught economics, and economics history.

Dr. Sylla:

By 1990, I got a call … an offer I couldn’t refuse from New York University Stern School of Business, to become the first Henry Kaufman Professor of The History of Financial Institutions and Markets. So I moved to New York in 1990, and spent 25 years there, teaching economics and economic history. And especially financial history, which is … I would say that’s my narrow specialty. So I did that from 1990 to 2015, when I retired and became Professor Emeritus. I still do everything I did when I was a professor at NYU, except teach classes. I do research, I do writing, I follow the markets very carefully. So it’s a nice life.

Trevor Chambers:

As I told you, my father was a professor for 43 years, so I’m familiar with the lifestyle growing up in that. Did you spend some time, overseas in China or something, or India? You lived in India for a little while, right?

Dr. Sylla:

I was lucky. Right after I graduated from college, I happened to get a Rotary fellowship. And that allowed me to take a round the world trip, when I was only 22, 23 years old. So I made the round the world trip, I partly was able to do that, because I chose India, which is about half way around the world, and spend the better part of an academic year. I think I was in India August 1952 through May of 1963, so that was a lot of fun. I got to see a very different culture. I’d studied a little bit in college. It was nice to live there for a while.

Then I came back through Asia, went to India through Europe and Israel, and Iran, and then India. And then I came back through Thailand, and Hong Kong, and Japan, and Hawaii, back to the US. So I got a round the world trip out of it. It’s a nice thing for a 22, 23 year old to do.

Trevor Chambers:

Well, that’s interesting, because I was a Rotary exchange student myself, right out of high school. So we share that in common. That’s fabulous. So let’s talk about your study of interest rates. That’s what really kind of turned me on. I thought this was very interesting. So tell me about that. We’ve got a stretch right here of historically lows. Tell us about that.

Dr. Sylla:

Well, right now we have the all time lows of four or 5,000 years of history. And I know that, because I got interested, as a financial economist in the interest rates, and a financial historian. And there was a well-known book published in the … first edition was in the 1960s, and there was another one in the 1970s, by a man named Sydney Homer, who was a partner in Solomon Brothers in New York. It was called The History of Interest Rates. He had this interest in history, so he wrote this History of Interest Rates, going all the way back to The Code of Hammurabi, or even earlier. That’s like 4,000 years ago, but he had a little bit of information on what interest rates were 5,000 years ago.

As you come up closer to the modern world, the middle ages, and the early modern period of European history, and right up to the present, we have a much better record of interest rates. Sydney Homer died, some time around 1980, and so the publishers of the book came to me, in the 1980s, and said would I update the book. So then I got very … I accepted the challenge, and updated the book, mostly with the 20th century stuff. And so I got to know a lot of interest rate history for 5,000 years, and got used to the patterns that one sees, in that history.

So I had two or three editions of that, in the 1990s and early 2000s. The last one was 2005. And they asked me, did I want to update it again, a year or two ago. And I said, “Well, we’re in this particular period of very low interest rates now, and everyone thinks it’s abnormal. I’d like to see us get back to normal,” before I accepted that challenge. And it seems we haven’t gotten back to normal yet. We’re still down to very low interest rates.

Trevor Chambers:

So is there any … and from an historical pattern is there something that triggers the rise every time? What do you think-

Dr. Sylla:

Well, what we’ve found in the book, and I think it’s continued into the modern era, even since the financial crisis and so on, is that despite the low interest rates now, there’s a pattern of … interest rates tend to trend, in US history, for periods of 20 to 40 years. That is, they’ll trend up for 20 years, they’ll trend down for 20 to 30 years. For example, they trended down in the late 19th century, the last three decades of the 19th century, then they rose in the first two decades of the 20th century. Then, they trended down for 25 years, to the end of world war two. Then, they trended up from then, to the extremely high interest rates this country had. Sort of the all time highs were in 1981, and then starting in 1981, interest rates trended down, and they’ve basically been trending down now for, what is it? Nearly four years now. So we’re getting at one of the really long cycles of interest rates trending down.

I actually thought we might have broken the trend around 2004, 2005, the FED was raising interest rates. And in the last edition of the book, I said, “Maybe when the 10 year bond was at a very low rate of 3.33% in May of 2003, that maybe that was a low.” By the time I was writing in 2004, and five, the interest rates were moving up, and the FED was moving up 25 basis points, at every FED meeting. So I thought we might have broken the trend, but then the financial crisis hit, and I turned out to be wrong, because the FED took drastic measures for the financial crisis of a decade or so ago, and pushed interest rates down to very low levels, zero, and held them there. And they’ve stayed low, even in the decade long recovery, from the financial crisis. But now, we’re in the Coronavirus crisis, and interest rates are back down there, around zero again, and the FED’s policy rate.

Trevor Chambers:

Yeah, so we could be stuck in these low rates for a while more here, it looks like?

Dr. Sylla:

I think so. The economy is growing a little slower, ever since the financial crisis of a decade ago, and that means that the general level of interest rates would be a little bit lower. I didn’t think they would stay around zero for quite as long as … and even negative rates in Europe, we haven’t had those in the United States. But in Europe it’s had these negative interest rates, which is really unique in world history, I think, for interest rates to be negative.

Trevor Chambers:

Yeah. So we’re looking, maybe for some sort of a triggering even that gets this … or maybe not. It starts to normalize. And what do you feel is a normal rate? What’s the historical normal rate for the US? Where should we be, in your opinion, all things given?

Dr. Sylla:

Well, I think the changes a bit overtime in the 19th century. I think of a 5% or 6% interest rate, on a long-term government bond was fairly normal. But by the late 19th century, that got down to 4% and 3%. In the 20th century, I would say it was in the 3% to 4% range. And when I was young, embarking on my studies of economics in college, a four, four and a quarter percent rate was usual. And the economy then grew at about 3% a year, so I would say now that we’re growing, it seems like the 2% a year is about all we’re being able to accomplish for the last decade or so. I would guess something like a normal interest rate might be in the three, three and a half percent range, for a long-term government bond. And probably a two and a half, to three percent range on a shorter term government bond. And maybe 2% on treasury bills, but we’re below that right now.

Trevor Chambers:

So the FED is essentially juicing to get growth, because we would rather … I would imagine want to see that growth a little bit higher-

Dr. Sylla:

Yes.

Trevor Chambers:

… What are we causing? What’s the causality on the negative side?

Dr. Sylla:

Well, I would guess … I have a good friend in New York, who’s named Jim Grant, or James Grant, of Grant’s Interest Rate Observer. And he has me fairly … I don’t share all of his views. He would like us to go back to the Gold Standard, I think, and I don’t share that view. But Jim thinks that, by the FED keeping interest rates as low as they are, they’re causing misallocations of capital, or stimulating … When I’m in New York and in my condo, on Roosevelt Island in New York, I look out at Manhattan, across the East River, and I see all sorts of cranes and 100 story buildings, with expensive condominiums, to sell to Russian Oligarchs, and all of that, it seems like that’s what you do when you have very low interest rates. You do a lot of things. I’m not sure building expensive condos for Russian Oligarchs is the best use of American capital, but a lot of that is going on.

So I see some misallocations of capital, which may be caused by the FED’s effort to get the economy growing faster than it is, by keeping interest rates extremely low. So that’s a problem, I think. And of course, the surprise to most of economists, is that there hasn’t been more inflation from the FED policy, at keeping interest rates so low, and creating a lot of bank reserves. I think that’s an aftermath of the crisis. But there had been, until two, three, four weeks ago, inflation in asset prices. And that has changed now. The virus was sort of a trigger, to reevaluate the level of equity prices.

There again, the equity prices probably got up to be higher than they should have been, because of the very low interest rates policies. And now we’re seeing that the crisis has made us rethink that … the Coronavirus crisis.

Trevor Chambers:

Right. Now, the other thing you do when you expand your balance sheet, right? You like interest rates to be low, I would imagine, because if they rise, it’s going to be painful.

Dr. Sylla:

Yeah, the expansion of the FED’s balance sheet, which was pretty dramatic, after the crisis 10 years ago, is not unprecedented. There were other … in the 1930s and the Great Depression, there was an expansion of the balance sheet. And of course in world war one, when the FED was brand new, there was a big expansion of the balance sheet. So that’s not unusual at all, but to have this last for such a long time, with keeping interest rates so low, that is a bit unusual.

Trevor Chambers:

Yeah, so this is the longest elongation really, that we’ve …

Dr. Sylla:

Well, I think interest rates have trended down since 1981, and now it’s 2020, so that’s 39 years. That’s getting at the outside. I said earlier that usually they trend one way or another for 20 to 40 years, and usually it’s more like 25 or 30 years. And now we’ve had 39 years of interest rates trending down.

Trevor Chambers:

Well, that’s great. So let’s move to panics, okay?

Dr. Sylla:

Yeah.

Trevor Chambers:

Can you bring some history into worldwide panics, or the US panics. And obviously, how does this compare and where are we going, do you think?

Dr. Sylla:

I would say that if you know your financial history, there are periodic panics, and sometimes more frequently, sometimes less frequently. But just to tick off the ones I’ve known, and taught about, there was one in 1792. I call it Wall Street’s first crash. We were just setting up the financial system then, and Alexander Hamilton was restructuring the US debt from the revolutionary war. So there was a panic in 1792. There was another one in 1819, 1837, 1857, 1873, 1884, 1893, 1907, and then of course the Great Depression of the 1930s. And then, we had a long period without any financial panic. There were ups and downs of the stock market.

And I think that’s what’s surprised people so much in 2007, ’08 and ’09, that for not since the 1930s, before most people had any memory, people living today didn’t remember the 1930s. Only financial historians did. And I think that’s what surprised people so much, that there hadn’t been one of these things. People by 2005, or ’06 thought financial panics in a country like the United States were a thing of the past. And then we discovered, no they’re not a thing of the past. So we had that pretty bad financial crisis. And now, we’re having another crisis, connected with an outside force, namely the Coronavirus. And I think that is a little unusual.

The current situation is unusual in the sense it’s not caused by excesses in the financial system. It’s caused by a worldwide pandemic, which has caused people to reevaluate just about everything, including stock values and bond values. And I think what’s different about this crisis, is that it’s not just financial, it’s also medical. And most of the other panics I’ve mentioned … though there were a good many of them, they were just financial panics. People ran on the banks, because they thought the banks might fail, and their stock markets tumbled, and all that. This crisis is a little different, in that it’s a medical crisis.

Trevor Chambers:

Right. And as we were discussing earlier, prior to pushing the record button, people were working, but they’re not working, and they’re not grabbing beers after work. That’s all shut down, so-

Dr. Sylla:

Yeah, that’s right. That’s what’s really unusual to me. I can’t remember in all the other panics of history, with the ones I’ve mentioned … I didn’t mention the 1918, ’19 flu, where a lot of people were out of work, because that was a major health crisis, and it ended up killing something like 600,000 or 700,000 Americans. And remember our population was only 110 million then, about a third of what it is today. So things could get really bad, and a real pandemic. There wasn’t any great financial crisis then, but certainly the stock market didn’t do all that well. And there was some big inflation too. So in real terms, the stock market went down. Real returns were quite low in 1918, ’19, and ’20.

Today, I think this is more of a financial and medical crisis coming together. We don’t have much experience on that, so I would warn people not to judge today’s crisis by past crises, and say, “Well, it will be over fairly quickly. All the FED has to do is create more money.” This is a little different. This is not just a financial crisis, this is a pandemic.

Trevor Chambers:

In terms of the market, once we see that we’re going to get through this, and everybody gets their wits, what do you think is going to happen to the market? What’s your … I’m not trying to get any insider training here, or anything like that, but I’m just wondering. What do you think is going to happen here, once this-

Dr. Sylla:

Well, my guess is now the market is … as of yesterday or the day before, the markets are basically down around 30%. A little bit higher on the DOW than on the SNP and the Nasdaq. I was trying to figure out why that was. I think the DOW is down around 33%, and the Nasdaq, and the SNP were only down on 29%. And I think the reason is that … looking at the list of stocks and the DOW, one of them is Boeing, which has been very hard hit. And they have a couple of big oil companies there, Chevron and Exxon. And we know what’s happened to the price of oil lately. So to my mind, that’s why the DOW is doing a little worse. Boeing, and Exxon, and Chevron, may have a lot to do with why the DOW is down a little bit more than the SNP, and the Nasdaq.

But I’m thinking, that’s 30% down. I’m not sure we’ve hit the lows yet. In fact, I just took a glance, a half hour ago, at what we’re doing today. And at that time, it looked like we might set new lows today. I think the lows … we got used to our two previous crises, and the great financial crisis of 2008 and ’09. And stocks got down more than 50%, and the .com bubble stocks actually were down 50% from their highs by 2002. So it’s not unprecedented in any way, for stocks to go down 50%. And I suspect, since we’re only down 30% now, there’s a possibility that we’ll still see lower levels. I don’t know if we’ll get to 40 or 50%.

But once the crisis passed, I think there might be a fairly rapid recovery, because then people will say, “Okay, it’s over now,” and the earning power of these companies can come back. And so I think there could be a good rally.

Trevor Chambers:

Yeah. I think we feel the same way, I think. But nonetheless, it is scary for a lot of people. This is why I wanted to interview you, because I wanted to bring some context to the whole thing and-

Dr. Sylla:

I think the big question for everyone is how long this is going to last. We’re taking a lot of measures now, trying to … the buzzword today is flatten out the curve. To have a lower number of peak things that may be stretched out, over a longer period of time. I’ve seen things that say maybe well … present Trump himself, said it would be July or August before we saw much progress on this. And I think that’s scared a few people this week. This could stretch out to the end of the year, maybe going into next year.

I think I saw a forecast from Goldman Sachs, making it look like we wouldn’t be out of the woods until maybe late in 2021. That seemed to be a very pessimistic forecast, but if that’s true, then the markets may stay down for a while. But I think once we do get behind it, I think once we get behind the worst of it, and the number of new cases levels off, or goes down, then people will say, “Well, we’re getting out of it now.” But you have to be careful, because in 1918 … I did a little study of that lately, just for comparison purposes. The flu wasn’t so bad in the first half of the year, and people thought they were out of the woods by the middle of the year, and then the virus mutated apparently, and the worst of the 1918, ’19 flu pandemic, at least in the United States, came in October 1918, where there were a pretty heavy number of deaths. And the hospitals were full, and we had people in tents and all that.

We’re talking about that now. So there’s always a chance something like that might happen, but it seems like this Coronavirus is not so lethal. A lot of people have had it, and have gotten over it, like a bad case of the flu. It’s more lethal though, for older people.

Trevor Chambers:

Yes, for sure. And we’re certainly not taking that lightly, because obviously the human tragedy in this is going to be not great-

Dr. Sylla:

I would say that the big difference between this and other crises, is that our economy now, as we speak, on March 20th is in the process of shutting down. Last night the Governor of California, told people to stay home for a while. Today, the Governor of New York said that. That’s what’s really different this time. We know that there’s going to be a recession. We’re probably already in it, and some people are saying this recession could be a bit like the depression of the 1930s, if it lasts very long. In terms of major declines and real GDP. And I think until we get a little clarity on that, I don’t see the market heading up any time soon.

Trevor Chambers:

Okay, so I guess let’s look beyond this. What do you think the landscape looks like, especially what happens after you go through this much trauma? Especially, we have big healthcare … how are we going to provide healthcare to people debate. Is this going to change politics? Is there any historical measure, like panicking is going to happen and then, because of that, the government did this, or did this, or expanded? Obviously, the government expanded dramatically during the first depression. Do you see something like this? Because there’s a lot of people that … depending on the powers who look at that now. And that’s the thing that’s worrying them.

Dr. Sylla:

Well, I think there will be some changes. Again, I could refer back to the flu pandemic, in 1918, and 1919. Woodrow Wilson, a Democrat was president at that time, and the people changed. The Republicans won with Harding in 1920. Wilson was too ill to run, but there was a change of parties, that ran the White House, and to some extent the government. And then, of course the 1920s turned out to be a fairly prosperous period, the next nine years. They talk about the roaring 20s, and all kinds of new technologies were there, technologies that we take for granted today, like radios and airplanes, and movies, and things like that.

But those were kind of new things in the 1920s, so it was a pretty prosperous period for the United States. So one might expect that after all the Democrats or Woodrow Wilson, did manage to have a big roll in winning world war one, and you might have expected that that alone made people feel pretty good. But in fact, when you couple the losses in the war with the losses to the flu, people want to have a change in regime, in the elections of 1920. You’ve mentioned healthcare. That was an issue before the crisis even came, because Bernie Sanders was saying, and Elizabeth Warren, were saying we should have a single payer, and they were talking about a major redo of our health system, which scared a number of people.

I think now we’ve had the Coronavirus problem, that’s probably going to make people again, say that we should change the way that we deliver healthcare in the United States. I’m not sure that’s warranted, but I’m sure it will come up. So I think we probably are in for some political changes, and we’ll have to see. In the end, if you believe in our system of democracy, and representative government, people will get what they want. And that’s probably a good thing, as long as we understand fully the implications of whatever changes we might make.

Trevor Chambers:

Certainly interesting times. I’m going to switch gears a little bit-

Dr. Sylla:

Yes, crises do kind of stretch what people want a little bit. Roosevelt came sweeping in when we had 25% unemployment. And by the way, people are talking about we might get … we had the 10% unemployment in 2009, and we had 10% unemployment back in 1982, and we had the FED engineered curbing of the inflation, that seemed out of control, before Mr. Volcker came in. So I remember 1982, we had 10% unemployment, and we had 10% just a decade or so ago. And so I think we could easily get to there again, because the economy is shutting down. And we might even get up … The peak I think, was 25% in 1932, unemployment. Who knows? For a month or two, we might see something like that, if people can’t go to work, and they’re being laid off, or furloughed, and the governors are saying, “Stay home.”

Trevor Chambers:

Yeah. And particularly the energy sector is going to be very interesting, what with shale gas and all of that, what’s going to happen there-

Dr. Sylla:

Yeah, well one complication is that Saudi Arabia, and Russia seem to be having a dispute that is leading them to keep up their oil production. Some people say it’s a plot to ruin our shale oil producers, and our frackers. I don’t know, but we’re down below $25 on our crude oil now, West Texas Intermediate. And I saw some people yesterday saying, “Those people can’t really stay in business unless oil is around $30 a barrel.”

Trevor Chambers:

And the beautiful thing about America and our system is those with good balance sheets, will potentially gobble up those that don’t have good balance sheets-

Dr. Sylla:

That’s right, well that’s [crosstalk 00:30:15] not just America, but that’s capitalism.

Trevor Chambers:

Yeah, exactly.

Dr. Sylla:

The famous economist, that died a long time ago, but people still refer to him, Joseph Schumpeter said, “Capitalism is creative destruction, and when you have a downturn in the economy some people go out of business, but then other people take over those businesses, and improve them.” So I think there will be a lot of problems. Some large businesses, and some small businesses are going to have a lot of trouble over the next year or so, and they may sale, but then people will move in and buy up their assets, maybe at fire sale prices, and then do better with them.

Trevor Chambers:

Yeah, exactly. Got to love this country. Got to love capitalism.

Dr. Sylla:

Well, I think it’s had a very good record. I used to tell my students, “Maybe China is the greatest emerging market of the last two or three decades. And Japan was maybe the greatest emerging market of the second half of the 20th century.” But I said, “If you want to talk about the greatest emerging market of the last say 200 years, it was the United States.”

Trevor Chambers:

Well said. Absolutely well said. In these times, it’s so interesting that people … Do you like a sale, do you like when things are on sale?

Dr. Sylla:

Oh, yeah. I’ve never understood when Macy’s has a sale … I live in New York, if Macy’s has a sale, we go to Macy’s and buy the goods at 30% off, or 40% off. And when Wall Street has a sale, people say not, “I want to buy some of that stuff that’s on sale.” They say, “Get me out of here, get me out of here.” I’ve never quite understood. I guess it has something to do with human nature, but in fact when things happen, as have happened to us in the last few weeks, we should be looking to buy those things. Wall Street is having a sale right now. It might get to be an even better sale in the weeks and months ahead. But certainly things are on sale now, and long term, I think if you’ve picked up some good companies at today’s prices, a few years from now, you’ll feel pretty good about it.

Trevor Chambers:

Yes, people forget that you’re investing, and as much as anything, it’s time. And everybody has different runways, and I understand that. But it must … for you, and your perspective it must be just incredible to watch this, because-

Dr. Sylla:

Yes, well it’s [crosstalk 00:32:36]. I find it very interesting, in fact. I watch the TV, and I read the papers and after my long career of studying financial development and financial crises, it’s quite interesting to me. I have a perspective that these things have happened before, they’ll probably happen again. But I think since most people don’t have that historical perspective, they get all wrapped up and it’s like, “This is the end of the world.” And it’s not the end of the world. It’s a problem, it’s a major problem that we have to get through, but we will get through it, and the world will get back to more or less normal, probably not too far in the future.

Trevor Chambers:

Yeah, and I think adding fuel to the fire, this is the first social media pandemic really, that’s really got on the … And the other thing is panics sell a lot of adds.

Dr. Sylla:

That’s true. I’ve been watching a lot more TV now, especially CNBC, because things are happening all the time. And other people are too, and I think that modern social media, and the media itself, we know what’s happening, more or less not long after it happens. That can be both good and bad. We’re better informed, but we might also … some of it might scare us more than it should.

Trevor Chambers:

Now-

Dr. Sylla:

Maybe we should have circuit breakers, like they have at the New York Stock Exchange, these people just shut off their TVs for 15 minutes.

Trevor Chambers:

Hey, you know it’s interesting. Down here … I’m in Raleigh, as you know, and you go out into the parks and it’s full. This is crazy, we should do this all the time. The kids are home, but they’re learning how to cook, because they have to. The restaurants are limited, and it’s just a … these are the sea of changes that are going to happen. I think a lot of people are going to become better cooks-

Dr. Sylla:

There’s more time to spend in the kitchen, now that you can’t go out very much. I hope those people who are outside in Raleigh are staying six feet away from each other.

Trevor Chambers:

Yeah, well people are doing the best they can. So, I’m going to switch gears, if you don’t mind.

Dr. Sylla:

Sure.

Trevor Chambers:

A couple of things, what are you reading these days?

Dr. Sylla:

Well, one-

Trevor Chambers:

Or, podcasts, or what are you watching? What’s going on?

Dr. Sylla:

Well, I’m watching TV. I think it’s fun to watch what’s going on in the markets in real time, and I think CNBC is more interesting than usual now. Lots of times people are hyping stories that seem kind of minor. Right now, the stories are really important, so I do watch more TV. But I picked up a book the other day. It’s not exactly a new book, but I’m a historian, you know. The book is called Lies My Teachers Taught Me, or Told Me. And I think it was interesting to me, to see how we have ways of presenting our history, that may not be very accurate. And I particularly read a chapter about the treatment of slavery in American history books, which seemed to be quite different from what people know about actual slavery today.

We sort of downplayed our history of slavery. It’s an unpleasant topic, and we’re optimistic people. And of course, slavery is tied up with race relations problems, which still seem to be with us a little bit. The book showed how historians, in order to make our history seem a little nicer than maybe it actually was, just said things about slavery that weren’t true. So I thought this, Lies My Teachers Taught Me … I can’t remember the author’s name now, but it seemed to me a book that more people should read, because it teaches you that you can’t believe everything … just like you can’t believe everything you see on social media, it turns out that you can’t believe everything that you read in the textbooks that they give you in school.

Trevor Chambers:

Yes, you got to … I’m actually looking it up here, Lies My Teachers Told Me, and I’m trying to find the author. But I will find that, and I will track it down.

Dr. Sylla:

I could send it to you. I don’t have it handy with me, right now on the phone.

Trevor Chambers:

No, I got it. This crazy thing called Google, will let me figure it out here. But anyway, what now? So that’s what you’re reading, but what are you writing?

Dr. Sylla:

Well, I have a paper I’m writing, which is for an old friend in Europe, who’s retiring. And academics have a strange custom called a [German 00:37:27]. That’s a German word, meaning to celebrate writings. And I had one, when I retired. Some of your friends come together, and present papers. So I’m writing a paper now, on the changes in the US banking structure, over the last 100 years. And that’s really interesting, because 100 years ago, we had 30,000 banks, and a very fragmented banking system, and today we have only about 5,000 banks, and some very large banks, like J.P. Morgan Chase, and Wells Fargo, and City, and Bank of America, that are really very dominant banks … very large banks by American, or world standards.

So our banking system has changed over the last 100 years, to become more like it used to be in Europe, where they had great big banks, with branch systems. So I want to talk about that happened. And then, the interesting thing is, that now that they have a European Union, Europe looks a bit more like the United States looked, 100 years ago, where each country has its own banking system. We had states with our own banking systems. Now Europe has countries with their own banking systems, so that’s causing them some trouble. They’re not having a banking unification in Europe. So Europe today, looks more like the US looked 100 years ago, and the US today, looks more like Europe did 100 years ago.

Trevor Chambers:

Wow, yeah states even have their own currency.

Dr. Sylla:

Well, not so much.

Trevor Chambers:

Oh, I thought-

Dr. Sylla:

Since the civil war, we had pretty much uniform currency, backed by the federal government.

Trevor Chambers:

But prior to that, prior to that right?

Dr. Sylla:

Prior to the civil war, yes. Well, every bank issued its own currency. In colonial times, the states issued … they weren’t states then, they were colonial governments. Still part of the British empire. But the colonial New York, and colonial New Jersey, and colonial North Carolina, they issued their own currencies. Before the civil war, we had about 1400, 1500, 1600 banks. Each of them issued its own paper money currency. Supposedly convertible into hard money, gold and silver dollars. But it got to be a rather chaotic currency, when each bank had say six denominations of currency, and there were 1500 banks. So you had 9000 different looking pieces of paper, all claiming to be dollars.

Trevor Chambers:

Yeah, okay.

Dr. Sylla:

That went away in the civil war.

Trevor Chambers:

Yeah. So do you think Europe is going to move towards a more US based looking system, and do you think that makes sense, or what do you …

Dr. Sylla:

Well, I think they talk about it. I mean, they have the Euro now, as a uniform currency-

Trevor Chambers:

Yeah, of course.

Dr. Sylla:

… so they have a monetary union, but they don’t have a banking union. There’s an Italian banking system, that’s in trouble. There’s a German banking system, that’s having problems. I guess the French aren’t so bad. And now, of course England never got on the Euro … or the UK never got on the Euro. They still have the pound, and now they’re out of the European Union. I believe that Europe has some real problems to face up to. And I feel the European Union itself is a little shaky right now, I think. And I think the virus crisis, which is worse in Europe right now, than it is in the US. I hope we manage to avoid some of their worse …

Italy has had more deaths and cases now, than China, I guess. And that’s something that we should keep an eye on, because it could happen here. And anyway, I think the Europeans do have some real problems, and I think they may be aggravated by this crisis. The people in Italy are angry now, because the Germans refused to send them medical supplies. Germany didn’t say, “We were refusing Italy.” They just said, “We won’t export any of our medical supplies from Germany,” but that had the effect of making things more difficult in Italy.

Trevor Chambers:

Well, I will say … just and I don’t want to dwell on this too much, because we’ve spent quite a bit of time on the virus, but Italy has a tremendous amount of senior citizens, aged population, and a tremendous amount of smokers. So it’s no surprise that it’s killing a lot of people in Italy-

Dr. Sylla:

Right. The virus attacks your lungs. And see, young people have good lungs, and I think that not so many of them smoke anymore. But older people, your lung capacity goes down, as you age, and that’s why the virus is especially bad for people in their 70s, and 80s.

Trevor Chambers:

Yeah, very scary. So that leads me to another thing. This is a little bit off the … we didn’t really discuss this question prior, but do you have any thoughts on just demographic changes, on a global … or even in the US. To me, those things are just so impactful. Obviously western societies, and even in the Far East and Japan, they have … the population has grown. It’s a huge population, especially the US baby boomers, growing older-

Dr. Sylla:

They’re all retiring now.

Trevor Chambers:

… Yeah, and retiring. And that changes all sorts of things. Even in China, they took away the ability to have more than one kid for a while there. And the demographics in 25, 30 years, do not look great for China. [inaudible 00:43:13]. Do you have any thoughts on that, in terms of where that might take us?

Dr. Sylla:

Well, I think demography matters, more than most of us think. It changes very gradually, like the baby boomers, who were in their working years, for most of the past five or six decades. But now they’re retiring, and it creates a problem. Basically, birth rates are down in most countries of the world. That means, as populations age faster, that we have modern safety nets, like social security and Medicare. And what happens there, is that basically you get more people taking advantage of the safety net, like social security and Medicare, and fewer people working to provide the tax revenues that are necessary to make the payments. And so, I think that’s a growing problem. Before this latest crisis, people were saying, “Social security may run out of money in 15 years or so, and the Medicare is basically tremendously underfunded, in terms of what they promise.” And we haven’t really faced up to that.

One of the things that depresses me about our modern politics, is that … it’s kind of understandable in a way, but the politicians don’t seem to be very interested at all in longer run problems. Everything is about, “How do I win the next election?” And you don’t win the next election by saying, “We need to pay more in taxes, to support our social safety net.” You do win elections by saying, “Let’s cut taxes, and let’s spend more money on these things. And if we don’t want to raise taxes to pay for what we demand, let’s just borrow it.” Well, you can’t borrow forever either. The balance sheets of governments are looking worse and worse over time.

Trevor Chambers:

Yeah, absolutely. And again, this kind of plays into what we were talking about earlier, about interest rates, and those interest rates, if they decided to move up. That’s going to be problematic. If you could just put in on a credit card, and have a low interest rate for infinitum, then okay, well let’s do that, but I don’t know.

Dr. Sylla:

No, and I’m … watched this develop. A lot of people don’t realize that in 1980, the national debt of the United States got up to one trillion dollars. And I think 20 years ago, it was about five trillion dollars. And now, it’s 23 trillion, and it’s going to go up a lot more, because of this virus crisis. And I think we’re really putting things on the credit card, to an extent that should disturb more people than it does. The politicians don’t seem to say much about it, whether they’re Republicans or Democrats. But there are people who watch this and worry about it.

You can’t do much about it in a crisis, like we’re having now. The government is talking about big spending programs to keep the people who lost their jobs … may need to have a little spending money to buy food. So in the short run, the government needs to do these things, but we’re going to come out of this with an even larger debt. And maybe the debt that we didn’t expect to run up quite so fast, it will run up fast now, and maybe that will make more people worried about long term solvency.

Trevor Chambers:

Well, that’s certainly a controversial topic, and maybe one that we can explore on another call. Still let’s-

Dr. Sylla:

Yeah, I think so. The story isn’t going to go away, Trevor. It’s going to be with us for the next 20 or 30 years at least.

Trevor Chambers:

Absolutely. Is there anything else that you want to talk about? And then, I have one other question for you. Is there something that our readers and listeners might benefit in these times, from the sage advice of a financial historian?

Dr. Sylla:

Well, I’ve said this before, but I think it’s worth reiterating, that this crisis is really different from ones we’ve had before, like the financial crisis of 10 years ago. Because it’s really a health crisis, and it’s going to cause, maybe a bigger economic hit. You shouldn’t think that it will be just like 2008, and ’09, and then we’ll get over it. The Federal Reserve has no tools that kill a virus. So we should get used to thinking that this is a little bit different, and that means that we should expect to be surprised. Things will happen that we’re not expecting right now, that will come along, because this is a different sort of crisis, and they will surprise us. So it is different.

The other point is, that we’ve had things like this, like the flu pandemic 100 years ago. We got through that, and we’ll get through this one too. And life will return to normal. We don’t know exactly when, but I suspect it may take a year or so for that to happen. So don’t get discouraged by what’s happening, it’s not the end of the world. We’ve faced things like this before, even though health crises are rarer than financial crises. But we’ll get through it, so it is different, but we’ll get through it.

Trevor Chambers:

I feel confident, and I’m more reassured hearing that. All right, I have one last question, Professor. What beautiful wine are you going to pull out of the cellar, and enjoy this weekend, do you think-

Dr. Sylla:

Oh, I’m well stocked. The New Hampshire liquor stores, which have some of the lowest prices in the country, had a sale recently … or not exactly a sale, but if you spent $150, they’d give a a $25 card, to use in the future, so it was like a 16% reduction in price. So I went there and selected three or four cases, so I’m well stocked now. And maybe tonight, I’m thinking of having a French Bordeaux.

Trevor Chambers:

Perfect. Oh, that’s fabulous yeah. Well, you and I had a nice meal at the Harvard Club in New York in November, and it was just one of the more special evenings that I’ve had in quite a while-

Dr. Sylla:

I have to tell you, the Harvard Club emailed me this week … The Harvard Club in New York City, and said they’re shutting down for … until they open.

Trevor Chambers:

So the fortunes of FDR and JFK and all the others are looking at empty-

Dr. Sylla:

All those old Harvard men, Theodore Roosevelt. I don’t think I showed you Theodore Roosevelt, but he’s there too.

Trevor Chambers:

You didn’t. Well, it was just … I told people … Do you remember the movie, Trading Places, with-

Dr. Sylla:

Yeah, Eddie Murphy?

Trevor Chambers:

… yeah, with Eddie Murphy. Remember the two … Mortimer, and Randolph, and then the-

Dr. Sylla:

The rich guys, right.

Trevor Chambers:

… and they would meet with Ackroyd, the … Dan Ackroyd. In the beginning of the movie, they had a bunch of scenes, in what appears to be … I think it’s the Harvard Club of Chicago. I’ve said to people, I was just like, “Among other things, I felt like I was walking to that scene. And that place is so great.” It was a wonderful time.

Trevor Chambers:

Well, I’m probably going to drink some Italian wine this weekend, and then-

Dr. Sylla:

I like Italian wines, but I thought I might go French tonight.

Trevor Chambers:

That’s fine. I think we drank a French at the club that night, so I’m fully supportive. And I’m going to get the dinner next time. You got it this time, I’m getting it the next time.

Dr. Sylla:

Yeah, you can take me to the Angus Barn.

Trevor Chambers:

Exactly.

Dr. Sylla:

I haven’t been there for 25 years.

Trevor Chambers:

Well, we want to shout out to Angus Barn right now. Obviously, they’re hurting, and I spent 12 years in the restaurant business myself. My sister-in-law, and my brother-in-law own a small, Italian place in town. Actually right across here, from my office. And they’re hurting, this is real pain, and it’s not fun. This is not fun.

Dr. Sylla:

Well, that’s what Bill Ackman said, “You can get by a month or two with no revenues, but if you stretch it out to six months, or a year, or 18 months, you’ve got a real problem, in terms of of liability of business.”

Trevor Chambers:

Yeah, well … you know what we should do? We should do another one of these in say three months, or six … and we’ll review what we said, and it will be interesting to see what the history plays out. It’s wonderful.

Dr. Sylla:

I’d be glad to do that-

Trevor Chambers:

Excellent.

Dr. Sylla:

… although you’ll have to send me the transcript.

Trevor Chambers:

Yes, I will. Well, Dr. Sylla, it is a pleasure to have you hear, at Meet The Masters with Olde Raleigh Financial Group, and we’d love to have you again.

Dr. Sylla:

Well, thank you. I’ve enjoyed chatting with you.

Trevor Chambers:

Excellent. So have a great weekend. You hunker down, you and your wife, and enjoy that wine. And I’ll talk to you soon.

Dr. Sylla:

Fine, thanks Trevor.

Trevor Chambers:

Thank you. Yes, of course, sir. Thank you.

Dr. Sylla:

You’re welcome, bye.

Trevor Chambers:

Bye-bye.