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Fed to Blame?

Could the Fed have done better, or is it hopelessly flawed (and should be abolished)?

A list of criticisms here.

Thoughts?

/KDR

Posted by Kevin D. Rollins on February 1, 2008 12:11 AM |

Comments

Yes, it could have done better, isn't that always true?
I'm open to abolition of the Fed, but I'd need details, as would -- I assume -- the decision makers. I've seen no groundswell for such a drastic change.
My casual observation is that the Fed has operated far better since the 80s, when the monetarists became the dominant monetary theorists. CPI and interest rates don't generally swing as wildly as they used to. Far from a perfect state of affairs, for sure.

Posted by: Robert Capozzi | February 1, 2008 07:16 AM

The problem with the current actions is that they are inflationary. In the immediate instance, the correct answer is to free up capital in the financial markets by repaying debt in the only way which will not slow the economy - raising taxes on the wealthy.

I know this is heresy on this board. It is still the truth, however.

As far as the fed is concerned, it needs to be paid back the money the U.S. owes it and be directed to lend to employee-owned businesses at the discount window. It also needs to be reorganized into regions - along with the U.S. government under regional vice presidents and caucuses and be more accountable as well.

We are a long way from such reform of the Fed.

There is not much more the Fed can do under this President, since he will never raise taxes appropriately.

Posted by: Michael Bindner | February 1, 2008 11:20 AM

Honestly, I don't think the entire problem can be blamed on the FED right now. Certainly, its actions have hurt the economy, but monetary policy isn't the only pad policy. There's also fiscal policy, as in we are currently suffering the effects of SIX YEARS of extraordinary unfunded expenditures on the part of the federal government, due to the "War on Terror."

The news I've been reading also suggests that, rather than attempting to target an inflation rate, the FED has been targeting primarily an interest rate, while fudging the rate of inflation (dropping M3, continually adjusting their methods to drive "official" rates down) to make it appear that inflation is under control. In order to target the interest rate, they're buying government bonds (thus preventing them from ratcheting the interest rate upward), which essentially means that the War is literally being financed through the creation of new money.

Posted by: Tarvok [TypeKey Profile Page] | February 1, 2008 09:33 PM

To comment on the question raised, I'd say that as fractional-reserve systems go, the FED under the monetarists is probably about as good as it gets. However, I agree with the Austrians that the economic see-saw that seems to characterize western civilization stems at least in part from that practice (fractional reserve banking). Personally, I think that it would be far better to adopt a "free money" policy under which people are permitted to use whatever they want in exchange (including round things made from gold or silver, which is currently illegal under the federal code), but that also correctly defines over-issuance of receipts against other assets as a fraudulent practice. The FED wouldn't even have to be formally abolished, though I doubt they'd survive the competition without making some radical changes.

The government's role would be limited to providing a forum in which questions of fraud could be disputed, as well as decisions as to what they accept, and at what relative rates, for payment of taxes. Maybe the Mint could continue to sell coins, though I wonder what the point really is. It isn't as if the government is that much more trustworthy than anyone else, or perhaps less so, since it can't go out of business if it cheats its customers.

Posted by: Tarvok [TypeKey Profile Page] | February 1, 2008 09:51 PM

As an anarcho-syndicalist, I believe that employee-owned firms could take over most banking functions, from mortgages to lines of credit to stock savings (50% in ownership of the firm, 50% in a general fund of other employee-owned firms to self insure the first 50%). I also propose that such firms sponsor or provide the building of houses with food production, and possibly even fiber production (wool and cotton).

Given such a world, the use of money would be quaint, especially if large employee-owned firms bought up time share properties and paid for airline fare for its employee's vacations (or just paid for restaurant and hotel within limits).

Posted by: Xianleftist_Michael [TypeKey Profile Page] | February 2, 2008 07:52 AM

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