What happens when there's no Federal Reserve?

[Raúl Duke]

What are predictable effects on the world economy and/or American economy if the Federal Reserve System (the Fed), which regulates banks/financial markets, is removed/eliminated/closed/etc?

Don't the neoclassical economists/Friedman/Mises/libertarians want to get rid of the fed?

[grove street]

You would be left with Adam Smith's original version of a Free-Market.

Without any government intervention, monopolies, oligarchys will become more rampant, wages will drop (minimum wage goes against Free-Market theory), hours will increase, working/living conditions will worsen, there will be no public education (goes against markets) and you'll be left with all the makings of 19th century Capitalism.

[Die Neue Zeit]

^^^ That's a mainstream argument, though. The question dealt merely with the Federal Reserve and financial markets.

I'll stick just to the Federal Reserve, which is already privately owned. If the Federal Reserve ceases to exist at the blink of an eye, the financial markets will simply collapse under its overly leveraged weight. Although the other major financial institutions COULD gang up together to take over the Fed's interest rate setting function, the Fed will want to collect on its debts from all the major financial institutions that borrow money from it.

Moreover, one should consider bank reserves held by the Fed (http://en.wikipedia.org/wiki/Money_supply#Bank_reserves_at_central_bank). I don't know the details (because that would require at least one whole course on monetary policy).

[Comrade Rage]

Originally posted by [email protected] 14, 2007 08:46 pm
If the Federal Reserve ceases to exist at the blink of an eye, the financial markets will simply collapse under its overly leveraged weight.
That would make me want the Fed to be eliminated.

Other than that scenario, the Fed issue doesn't hold that relevance for me, or many other working-class people. Private control of this country's economic policy was around longer than the Federal Reserve.

[Raúl Duke]

Originally posted by COMRADE CRUM+November 14, 2007 09:45 pm--> (COMRADE CRUM @ November 14, 2007 09:45 pm)
[email protected] 14, 2007 08:46 pm
If the Federal Reserve ceases to exist at the blink of an eye, the financial markets will simply collapse under its overly leveraged weight.
That would make me want the Fed to be eliminated.

Other than that scenario, the Fed issue doesn't hold that relevance for me, or many other working-class people. Private control of this country's economic policy was around longer than the Federal Reserve. [/b]
Just wanted to ask this question since my AP economics class was covering financial markets, money, and the Fed.

After all my book is mostly based on the neoclassical theory I suppose (although the book doesn't make it seem better not to have the Fed...)

[Schrödinger's Cat]

If there was no Federal Reserve, money would have to be backed by something other than the government. It would be incorrect to say this would prevent imperialism because the alternatives would be gold or natural resources, which just means nations would compete to have the most of their representative money and all it would result in is either 1.) old Western banking where everything was a mess 2.) more centralized authority. It would also be an economic disaster unless done gradually and on an international scale. At best it would combat inflation, but that's it. Libertarian capitalists are foolish to believe the Fed is the ultimate Satan without recognizing that the monetary system is what causes problems. The gold standard was in force until the 1970’s and nothing changed when it was scrapped other than inflation. But debt is what kept America prosperous.

Gold standard would also mean a shrinking money supply. If the population doubled, there would still be the same amount of money in circulation. Fluctuations in the price of gold could make the situation even worse.

[Die Neue Zeit]

Originally posted by [email protected] 15, 2007 01:47 pm
If there was no Federal Reserve, money would have to be backed by something other than the government. It would be incorrect to say this would prevent imperialism because the alternatives would be gold or natural resources, which just means nations would compete to have the most of their representative money and all it would result in is either 1.) old Western banking where everything was a mess 2.) more centralized authority. It would also be an economic disaster unless done gradually and on an international scale. At best it would combat inflation, but that's it. Libertarian capitalists are foolish to believe the Fed is the ultimate Satan without recognizing that the monetary system is what causes problems. The gold standard was in force until the 1970’s and nothing changed when it was scrapped other than inflation. But debt is what kept America prosperous.

Gold standard would also mean a shrinking money supply. If the population doubled, there would still be the same amount of money in circulation. Fluctuations in the price of gold could make the situation even worse.
I don't know if I should say "You stole the words out of my mouth" or what. :wacko:

Yeah, the old "alternatives" would be there, but like you said, unless the transition's done gradually, it's game over. Then again, you negated the possibility of non-disaster even in the condition of slow transition by remarking on restricted money supply and price fluctuations of gold. The monetary system is basically a way to artificially produce as much debt-money as possible to keep the economy "rolling," which explains both the greater inflationary pressures and the $44 trillion aggregate U.S. debt that I mentioned in my Research & Online Classes thread.

[Q]

Originally posted by grove street+November 15, 2007 12:52 am--> (grove street @ November 15, 2007 12:52 am) Without any government intervention... [/b]

GeneCosta
If there was no Federal Reserve, money would have to be backed by something other than the government...
The Fed isn't controlled by the US government, it's a private company.

[Luís Henrique]

Originally posted by Q-[email protected] 16, 2007 09:26 am
The Fed isn't controlled by the US government, it's a private company.
Eh? :huh:

The FED chairman, as far as I know, is nominated by the POTUS.

And their website is "http://www.federalreserve.gov/"

Luís Henrique

[Luís Henrique]

It should also be noticed that "being against the FED" is a password for American anti-semites.

Luís Henrique

[Demogorgon]

If the government got rid of it, it would simply continue as a private entity, perhaps a bit less stable, perhaps even more favourable to the big corporations, but more or eldd the same as ever. There have been plenty of private central banks in the world, the US one os Government run though.