Abolish it.
The bankers wanted it.
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The Federal Reserve.
Hey I was wondering what some of you guys have against central banking and what you'd propose to replace it.
Also, what do you think was the historic reasons for the U.S. establishing the federal reserve. How would things be different without it?
Last edited by La Comédie Noire; 2nd May 2010 at 21:58.
But now we must pick up every piece
Of the life we used to love
Just to keep ourselves
At least enough to carry on
Abolish it.
The bankers wanted it.
The Federal Reserve controls the money supply. What is the optimum supply of money? If we were asking what the optimum supply of any other good were, the question would be ridiculous; obviously, we would be better off with more of something. But what is the direct benefit of an increase in the supply of money? Money cannot be eaten or used up in production. Money is essential to a society because it facilitates the exchange of goods and services and makes economic calculation possible, but once a good has been established as money, no increases in its supply are necessary or beneficial. They won't relieve the scarcity of consumer or capital goods. The natural effect of an increase in the supply of a commodity is a lowering of the price, and generally this means that production and living standards have increased in response to consumer demand. If steel or beef or houses become more plentiful and cheaper than before, everyone benefits. A fall in the price of money only serves to reduce its purchasing power, diluting its unique value as a medium of exchange.
Today, every country in the world uses fiat money, but imagine a society where gold is money. The value of gold will be very stable; gold is highly durable and it is costly to mine further gold, so the amount mined will always be much smaller than the stock accumulated over the centuries. The increase in the supply of goods and services will always offset the increase in the money supply, so the purchasing power of money will tend to rise, creating an incentive for saving and investment. We are so used to the idea of prices rising year after year that it may come as a surprise that prices consistently fell from the Industrial Revolution through Bretton Woods, with the exception of periods of major war when governments inflated the money supply radically and drove up prices.
To sum up, any supply of money in an economy is optimal, and a central bank is not necessary to control it.
Moving on: what is the reason for the interest rate, and should the rate be regulated?
The interest rate reflects the valuation of goods in the present over goods of equal quality and quantity in the future; everybody prefers to consume sooner rather than later, so future goods must be sold at a discount. If this were not so, an investment which would yield income in perpetuity would command an infinite price, but I can deposit money in the bank and collect interest every quarter. The government need not interfere with the market interest rate, as it simply reflects the subjective premium individuals place on a marginal present good over a marginal future good.
When the government artificially depresses the interest rate through open market operations, the effect is to discourage saving (not worth it to lend) and encourage investment (cheap enough to borrow), but you need real savings to invest. The expansion of credit made possible by a fractional reserve banking system directs capital into activities which would not attract investment if the money supply were stable. When exponential credit creation cannot be sustained, a sharp contraction in the money supply occurs, and we go through a recession while scarce resources are reallocated back to more efficient uses.Reason the Fed was established? Conspiracy by banking interests. How would things be different? The dollar would not have lost 96% of its value in the last 100 years, and we wouldn't have experienced vicious cycles of boom and bust in that time.
There are other reasons, but isn't that enough?
Not saying this is a bad thing, but wouldn't it slow growth?
But now we must pick up every piece
Of the life we used to love
Just to keep ourselves
At least enough to carry on
It's the only thing standing between contemporary banking and a massive financial revolution.
All the mores of capital don't mean anything - if the federal reserve wasn't there, the capitalists would no longer be able to pay people to defend their interests! Its the Achilles' heel of capitalism. We'd be in a mutualist/free-market paradise without it!
That's a vulgar understanding of the capitalistic system. Capitalism existed in the United States long before the Fed came around. Though abolishing the Fed would be a step in the right direction.
It was sarcasm.
