Federal Reserve System

[neorealist]

The Federal Reserve Act...its structure, jurisdiction, and term limits (or lack of).

We clearly do need a central bank but it wasn't structured properly IMO

[Michael]

The Federal Reserve Act...its structure, jurisdiction, and term limits (or lack of).

We clearly do need a central bank but it wasn't structured properly IMO
Technically speaking, the Federal Reserve is NOT a sovereign central bank - it is supposedly a 'private' institution. If anything, it seems to resemble something like a 'privately owned crown corporation' - which does seem weird.

To my understanding, the only real alternative to the Federal Reserve 'model' is to use the type of government entity established in every other western nation - a true 'central bank' - which is entirely an agency of the sovereign state and answerable to the legislature.

In practice, there doesn't seem to be much difference between the two. The US system is meant to be strongly 'independent' of government policy interference, but in practice, seems to be slavishly devoted to it. Oddly enough, the other Central Banks all seem to have much less theoretical independence, but in reality, actually do operate mostly independently of government policy or interference. This is of course only my 'impression' of the topic. I'd love to find some data-studies that might confirm this, though it is fiendishly difficult to actually model a valid study for this.

Either way, I'm curious about what particular or structural features of the Federal Reserve that you don't like? Do you think it should be more or less independent of the US Government than it is (or isn't)?

[Michael]

This thread was created from an interesting sub-topic in the '2nd Worst US President' thread.

I moved the posts here for continued discussion.

[The Drunk Guy]

I'm weak in economics, so I could use a lesson here.

Why is a government sponsored/controlled bank necessary? Why can we not monitor the actions of the larger banks instead? Why do we want inflation and just how the fuck is there supposed to be a "controlled" inflation?

[Michael]

I'm weak in economics, so I could use a lesson here.

Why is a government sponsored/controlled bank necessary?
Do you think there ought to be a free-market in issuing currency?

What if your local store won't take the Citibank-issued Dollar but only the Chase-issued Dollar?

That's why you have a central bank authority to regulate a monopoloy on currency.

Why can we not monitor the actions of the larger banks instead? Why do we want inflation and just how the fuck is there supposed to be a "controlled" inflation?
Controlled inflation is what we use to pretend the economy is growing when its not. The financial system seems to require constant rate of economic growth. If the economy doesn't actually grow, with inflation the financia sector can still pretend.

Recessions really screw up the financial projections of endless growth which screws up the financial projections of endless profits that the whole system is built on.

As many corporate elites will admit, 'inflation greases the wheels' of modern commerce.

And yes, we are looking at some serious inflationary dangers a couple years down the road from all the loose money policies being pursued right now.

[The Drunk Guy]

Do you think there ought to be a free-market in issuing currency?

What if your local store won't take the Citibank-issued Dollar but only the Chase-issued Dollar?

That's why you have a central bank authority to regulate a monopoloy on currency.
Several different currencies isn't sound business. Why wouldn't they share a currency? Does it have to be so extreme?

Also, isn't that similar to the current credit/debit system now. Some cards are excepted, others aren't and transactions are becoming more and more digital.


I'll respond more later. Have to return to my indentured servitude.:shrug:

[Americano]

Do you think there ought to be a free-market in issuing currency?

What if your local store won't take the Citibank-issued Dollar but only the Chase-issued Dollar?

That's why you have a central bank authority to regulate a monopoloy on currency.


Controlled inflation is what we use to pretend the economy is growing when its not. The financial system seems to require constant rate of economic growth. If the economy doesn't actually grow, with inflation the financia sector can still pretend.

Recessions really screw up the financial projections of endless growth which screws up the financial projections of endless profits that the whole system is built on.

As many corporate elites will admit, 'inflation greases the wheels' of modern commerce.

And yes, we are looking at some serious inflationary dangers a couple years down the road from all the loose money policies being pursued right now.

You are a master of understatement. In a debtor nation that consumes far more than it produces such as the US all we can do is hope eventual economic recovery of other nations and their currencies are way, way behind that of the US.

[Michael]

Several different currencies isn't sound business. Why wouldn't they share a currency? Does it have to be so extreme?
How could it be otherwise? That would require some form of collusion between competing private enterprises.

The USA previously had exactly this type of system in the 19th century - different banks produced different (branded) forms of currency.

Also, isn't that similar to the current credit/debit system now. Some cards are excepted, others aren't and transactions are becoming more and more digital.
Yes, that is true. Credit is supplied by a variety of sources. But the unit of credit is common to all. It wouldn't be possible if every credit card company was forced to use a separate currency.

[The Drunk Guy]

Controlled inflation is what we use to pretend the economy is growing when its not. The financial system seems to require constant rate of economic growth. If the economy doesn't actually grow, with inflation the financia sector can still pretend.

Recessions really screw up the financial projections of endless growth which screws up the financial projections of endless profits that the whole system is built on.

As many corporate elites will admit, 'inflation greases the wheels' of modern commerce.

And yes, we are looking at some serious inflationary dangers a couple years down the road from all the loose money policies being pursued right now.So basically, inflation helps stupid people in charge of vast sums of money to spend some of that money? When I see an inflation coming, I tighten my belt. Why does the macro side of things get so fucked up?

Like I said, economics isn't my strong point, but this just seems silly. The value of an object changes only when the quantity is grown or shrunk. Why decrease the value of currency ever? I feel like it's just a process we go through once a decade to squeeze blood from a stone. All it succeeds in doing is separating the classes even more.

[The Drunk Guy]

How could it be otherwise? That would require some form of collusion between competing private enterprises.

The USA previously had exactly this type of system in the 19th century - different banks produced different (branded) forms of currency. How did that go? Reminds me of miner's scrip from the mid-twentieth century.


Yes, that is true. Credit is supplied by a variety of sources. But the unit of credit is common to all. It wouldn't be possible if every credit card company was forced to use a separate currency.The dollar amount is the same only at the time of purchase. With the interest rates, the values change. Thus, a meal for one man may only cost $15, while another man pays $20 for the same meal. I know, its a stretch, but you get what I mean. Value has become subjective in a way it never has been before.

[Americano]

How did that go? Reminds me of miner's scrip from the mid-twentieth century.

The dollar amount is the same only at the time of purchase. With the interest rates, the values change. Thus, a meal for one man may only cost $15, while another man pays $20 for the same meal. I know, its a stretch, but you get what I mean. Value has become subjective in a way it never has been before.

Post-ww1 Germany attempted to print (money) its way out of severe economic recession and failed to do so. At the end workers paid daily in cash found their money as related to PPP was worthless for purchasing anything. There are photos of Germans burning paper money because it was cheaper than buying wood or coal. At its most severe, the monthly rate of inflation reached 3.25 billion percent, equivalent to prices doubling every 49 hours. The US Dollar to Mark conversion rate peaked at 80 billion.

Avoiding hyperinflation from monetary expansion is going to be a major US challenge. We are a debtor nation consuming far more than we produce to maintain a standard of living a service economy, IMO, can't possibly sustain.

[wphelan]

So basically, inflation helps stupid people in charge of vast sums of money to spend some of that money? When I see an inflation coming, I tighten my belt. Why does the macro side of things get so fucked up?

Like I said, economics isn't my strong point, but this just seems silly. The value of an object changes only when the quantity is grown or shrunk. Why decrease the value of currency ever? I feel like it's just a process we go through once a decade to squeeze blood from a stone. All it succeeds in doing is separating the classes even more.

You're absolutely right in your last statement. Inflation exacerbates income inequality. The Fed is injecting all this newly created money into specific segments of the economy. The people receiving the new money aren't hurt by it, but it creates problems for the people at the opposite end of the spectrum because now their money can't buy what it used to. Inflation doesn't happen evenly through society. There was a nice study of this very effect in the March edition of the Quarterly Journal of Austrian Economics. I'd suggest checking it out if you can. In addition, http://www.mises.org is a great resource for economic information.

[neorealist]

You're absolutely right in your last statement. Inflation exacerbates income inequality. The Fed is injecting all this newly created money into specific segments of the economy. The people receiving the new money aren't hurt by it, but it creates problems for the people at the opposite end of the spectrum because now their money can't buy what it used to. Inflation doesn't happen evenly through society. There was a nice study of this very effect in the March edition of the Quarterly Journal of Austrian Economics. I'd suggest checking it out if you can. In addition, http://www.mises.org is a great resource for economic information.

do you have a link to that? or is it a pay only site?

[wphelan]

do you have a link to that? or is it a pay only site?

I don't think it is available online. I have a subscription to the hard copy. I'll see if I can find anything though.

[neorealist]

I don't think it is available online. I have a subscription to the hard copy. I'll see if I can find anything though.

you live anywhere near peoria, IL...had to ask

[wphelan]

you live anywhere near peoria, IL...had to ask

Ha, I was actually just in Peoria today at the Civic Center for the farm show. Is that where you're from?

edit - I forgot to say that I'm about an hour northeast of Bloomington.

[neorealist]

I grew up in Morton and went to school in Peoria for a while...graduate from ISU and lived in Bloomington during college.

small world