Should we end the FED?

The presence of the Fed is based on the notion that the government, by way of manipulating interest rates and money supply, can influence economic cycles. A serious panic in the early 20th century led to the establishment of the Fed. The idea is that an Elitist government can influence economic events and avoid inevitable cycles of boom and bust, and thus also avoid the scorn of the electorate.
Naturally, this is as silly a notion as the current idea that exercise, fish oil and cosmetic surgery can defeat aging.
Oh well. There is a sucker born every minute.

@saint here here.

And even if we didn’t want to end it, why WOULDN’T we audit it? Anything that has a financial influence over people in America is audited . . . why wouldn’t the Fed need to be?

@mrrich724 the fed is designed to be as isolated from the political process as reasonably possible. I could see how auditing it could be used as a political weapon by jackasses in congress trying to fuck with the economy for their own purposes (kind of like how the Republicans nearly created a global financial panic by threatening to default on the US debt).

The fed has an absolutely critical role in maintaining a healthy economy. If we didn’t have the fed, the 2008 market crash could have been many times worse. Unfortunately, it’s difficult for people to appreciate things that were prevented from happening.

The FED is a private company now so Yes by all means it should be audited; inspected and analyzed to the fullest extent in the pursuit of transparency, truth and ultimately freedom.

But be aware, the fallout will affect us all. (A price I’m willing to pay for my grandchildren’s freedom)

@gorillapaws You are obviously the ostrich type ‘better the devil you know’ type of persona?

@Boogabooga1 I would be all for transparency if there was a way to do it that didn’t interfere with the FED’s ability to do it’s job, and couldn’t be manipulated by the politicians of the moment to pressure the FED into action. It’s necessesary at times for the FED to raise interest rates and cool down an economy that has worked itself into a frenzy. This is not popular for a lot reasons, but if the FED can’t do unpopular things such as this then it is no longer effective. I know they went through great lengths to keep the FED fairly isolated from political pressures when they first set it up.

I really haven’t thought enough about how a system of transparency could or should work, that would keep the FED’s people honest, while not screwing up their mission. If it’s possible, then I would support it.

@gorillapaws That won’t forestall any corruption internal to the FED, though. They aren’t a bunch of saints in there, no bank really is. They need to be held accountable like everybody else.
So. The job needs doing, but you can’t trust anyone to do it?

@Nullo that’s a fair point. I guess if it were possible, my preference would be for the Supreme Court to play that role somehow. It is the branch designed to be the least influenced by day-to-day politics, concerned with the longterm health of the nation and upholding it’s principles, laws and values.

The executive already has a check on the FED (and probably too much power as it is), and I don’t think any congress can be trusted to not interfere with it’s mission to score political points at any particular moment. That leaves only the Judicial branch, so I guess that would be my choice.

Without the Fed, we had similar banking crises in 1814, 1818, 1825, 1836, 1841, 1857, 1861, 1864, 1873, 1884, 1890 and 1907, or an average of one every 8 years. (The Bank of England bailed us out in 1836 and 1857, and J.P. Morgan in 1907.) I tend to favor the banking system that had banking crises in 1914, 1929, 1984, and 2008, or an average of one every 25 years.

Also, people repeat time after time the conspiracy theory that the Fed has never been audited, but repeating something often enough doesn’t make it true. The Government Accountability Office (GAO) audits the Fed. They are also audited regularly by private firms. As you can see in their most recent Annual Report, the auditing firm was Deloitte & Touche LLP.

@laureth thanks for posting the facts. I retract my earlier statements regarding auditing.

@laureth Yeah, it makes sense that booms and busts are unavoidable so it might be better to have them less often. If that’s the case and central banking is good, is congress to blame simply for spending way too much money? Have we just become so dependent on social programs that we are burying ourselves in debt? It seems like GAO is a good thing to have (provided the people running it are honest) so why isn’t there more talk about its existence. If the FED is being audited, why don’t people trust those reports?

And just a note: I’m not asking these questions rhetorically… I am actually curious to know these things. Education is key here. Thanks for your response.

Why don’t people trust those reports? Perhaps they haven’t heard, simply because the rumor that “the Fed has never been audited!” makes it into their head first, and they never think to look it up. Also, on the part of many Americans, there’s a deep mistrust of government, and believing in that sort of rumor “seems truthy enough” and fits in with their worldview, so is not questioned.

I think what people also don’t realize is that money is both a commodity like any other, and a symbol of value at the same time. If we don’t control the commodity, it will have wilder boom and bust swings (because uncontrolled commodities are like that). Do we want that? There’s a significant number of “hands-off” advocates, but I’m not sure they realize the toll in human suffering that these severe downturns cause.

There’s a good case to be made, actually, that we are not in enough debt right now. Seriously. As soon as the economy takes a piss, debt is in the cards: either because we spend on things like Stimulus, or because the tax base shrinks to the point where receipts shrink unsustainably. Either way, you’re going to spend (as a nation), and the choice is what spending priority comes first. Myself, I favor the “less human suffering” option, which means I think the stimulus wasn’t big enough.

The reason we’re not able to really climb out of this mess is because the economy has ground to a standstill. People are no longer buying goods and services, because they are either (1) broke, because they’ve been out of work or underemployed too long or are paying down debt, or (2) saving any money they come into, because times are hard and they probably have job insecurity and an underwater mortgage. In order to get money back into peoples’ pockets (and up the consumer confidence),we need to get them back to work. American companies have an amazing amount of money right now, just sitting there, because they won’t expand or hire people when there’s no business – they’re not going to pay people to just sit there and read the Internet. And they’re not going to get that business again until people have money. See the vicious circle? So when Biz isn’t spending and People aren’t spending, Government has to spend. Of course, that’s what a loud and vocal group of masochists and naysayers is saying is the problem, not the solution, and that rhetoric is what’s miring us down. (And when we have people back up and working, and when companies are once again investing that cash in capital and inventory, and the virtuous circle is back up and running, then we should worry about the debt, increase the tax take – perhaps back up to Clinton-era levels – and pay off the debt we took on to haul us out of this deep recession.)

We’re having amazingly low inflation right now, and there’s a reasonable fear of deflation. So when the Fed puts out a temporary batch of cash to stave off deflation, a certain element of people scream about the danger of hyperinflation, which, considering the reality, is crazy talk. In fact, a little more inflation would help pull us out of this mess too, as it would up peoples’ salaries and enable them to pay off their debt faster. This is something the Fed can help manage, if the political will is there. But people are so afraid of inflation right now, and the only way to stop inflation is to hit the economy on the head with a brick: when there’s a drastic number of people out of work, labor costs go down. labor costs go down, and the rich get richer while the poor get poorer, and we eviscerate the middle class, separating into the lower class (who will work for peanuts) and the wealthy, who reap the reward of low labor costs. And when we look at who is pouring money into the outlets that stoke the fear of “omg, hyperinflation is around the corner! keep hitting the economy on the head with bricks as long as possible!” – it’s the monied interests. If, like they do, you have a pile of money and no debt, deflation makes you richer – so you can see where it is in their interest to keep the economy in a shambles. They are also the main contributors to the Republicans in office, who have an added interest in seeing the economy in sleep mode so they can get a Republican president in ‘12. (Generally, if the economy is bad, people vote out the incumbent.)

So, if we want to improve the economy, asking about ending the Fed is the wrong question to ask. That’s like removing any restraint to a wild boom-bust cycle. What we need to talk about is not only how to get people back to work, but how to counter rumors that hyperinflation is “right around the corner!!” and rumors that the problem is the Fed.

@laureth, would you explain one thing in your comments. I have to look at things one at a time. So, our statement, “In fact, a little more inflation would help pull us out of this mess too, as it would up peoples’ salaries and enable them to pay off their debt faster,” confuses me when reading what you just wrote. How does inflation makes peoples’ salaries increase?

Sure. :) When we’re in an inflationary state, it means that it takes more dollars to buy something. For example, something that costs $10 now might cost $10.50 if we get a little inflation going. This includes the cost for an hour of human labor. For example, someone starting a new job now might make $10 an hour, but with a little inflation, that job might start paying a new person $10.50 an hour.

Because people make more dollar bills, they have more dollar bills to use to pay down debt, because the number of dollars you owe in debt does not increase to match inflation. Or, if they are not in debt, it gives them more dollar bills to spend on goods and services. So inflation isn’t always a bad thing. It’s only bad when you look at an item in the store that is $10.50 and think, “Oh no! That used to be only $10!”

A right-leaning economist explains it pretty well here. :)

Things cost more, so you won’t really have more money to pay down your debts, right? Goods and services cost more, so your extra dollars, supposing in this instance you are correct about the increase in wages (which I don’t understand and at the moment doubt) go to pay the increased prices.

I read your answer to my husband. My husband calls it a puppy chasing it’s tail. In the 70s when he first went to work, say minimum wage was $.90 cents and hour. He went on to explain to me, that you could buy five loaves of bread for $.47 cents, gas was $.47 cents a gallon,

Today, what’s minimum wage, $8.15 or something an hour. A single loave of bread is close to $3, gas is $3.50 a gallon, BTW, gas and alot of our goods and services increase in price because the dollar is weak on the world market. Inflation weakens the dollar. That is what makes the prices go up.

So explain to me why in inflationary times, I’m going to hire you for more than minimum wage when my other workers are getting minimum wage. As an employer, I’m just like you. I have bills to pay and a family feed, clothes, house, educate and medicate when necessary. Why would I pay more than minimum wage? That part really confuses me.

Part of what happened in the 70s was a labor shortage so employers were bidding against each other for employees. You commonly see this in inflationary times, because in inflationary times, there is higher demand for things, including workers. In other words, if you don’t pay me more than minimum wage, I’ll go work for someone who will. (In real life, I haven’t made minimum wage in many years.) If all of your employees do that, you’ll have to pay your next ones more than minimum wage to keep them working for you, assuming they have other options.

You ask, “Things cost more, so you won’t really have more money to pay down your debts, right?”—> This assumes that the prices of important things, like food, go up faster than the rate of inflation (which has not historically always been true). Here’s a better way of putting it. Let’s say dinner now costs $10, but after inflation costs $10.50, and I used to make $10 but now I make $10.50, so dinner still costs an hour of my time. But after I pay for things like dinner, I have more actual dollar bills to toss at debt, which has not gone up.

Inflation weakens the dollar domestically, yes. (That’s why they have to pay you more, if they want you as an employee, by the way.) But on the world market, the price depends on U.S. currency versus another country’s currency. It’s not just based on the dollar.

@laureth. I’m enjoying our back and forth, btw. You are keeping me and my husband, who is much better at the numbers than I, on our old toes. I hope you don’t mind me using him in our discussion. It is a rainy day here in Florida and we are in for the night and chilling.

How was there a labor shortage in the 1970s? Who was President in the 1970s during this time of so much work to be had that employers were begging for workers and paying them what they demanded? Nixon, Ford or Carter? I must have slept through that. lol

In April 1975, the unemployment rate was 8.8 percent. Today, it tithers at 9.1 percent and that was good news considering the past how many months? Unemployment was 3.9 percent in January 1970. By November of 1970, it was at 6 percent.

I’m interested in where you got monthly figures. All I could find was annual averages.

On the other hand, it is certainly interesting to compare inflation rate and unemployment, no? Here’s a quick and dirty comparison:

1973: unemployment 4.2%, inflation 3.4%
1974: u 4.9%, i 12.3%
1975: u 7.9%, i 6.9%
1976: u 7.1%, i 4.9%
1977: u 6.3%, i 6.7%
1978: u 5.3%, i 9.0%
1979: u 5.1%, i 13.3%

Not a perfect match, but unemployment and inflation generally move in opposite directions.

Yes, I say because it has failed its mandate many times, make the FED system optional. Competition breeds honesty, so lets legalize competing currencies. Monopolies are ugly detrimental utterances. Plus, a nation that lets private banks issue currency can hardly call themselves sovereign. I stand with with William Jennings Bryan when I say “the banks should go out of the governing business!”

Banks that are able to buy up physical property in times of economic hardship will end up owning us all. There’s going to be a point where we’ll close our markets to these financial demons or all be owned by debt servitude. Oh wait we already are.

Trust makes the world go round and when these bankers who are middlemen to our sovereign credit announce a world currency? There is where the trust left and it’s a requirement to get people to want to work.

The FED was created as a lender of last resort because when there is a run on a bank, bad gambling debts are exposed. Fractional reserve lending will always be a fraud on the people, no entity but the government should be able to leverage a nations currency. If they want to gamble with other people’s money, it should be the first thing they say.

People are whats real and has value, money is not, thats the scam.

“Competition breeds honesty”—> Until it breeds dishonesty, by hiding things you might not like so you don’t pick the other guy.

“Fractional reserve lending will always be a fraud on the people”—> Fractional Reserve is older than the Fed. If you think it’s a fraud, it’s been defrauding people since medieval times.

Luke 4:6 And the devil said unto him, All this power will I give thee, and the glory of them: for that is delivered unto me; and to whomsoever I will I give it.

Satan is the god of Earthly authority. The Federal Reserve has so much authority that even people in the government assume that it’s a government agency, which it is not. You are talking about ending Satan.

We have this prophecy we call Armageddon. The USA is prominently absent from the story. The country must collapse and become helpless before then. You are seeing prophecy being fulfilled as you watch. One would not want to be found resisting the prophecy.