What is the best system to replace the Fed?

[BuckeyeJim]

Yes, they very much are. They want to manipulate it for their own benefit. More to the point, the libertarian mindset has certain prejudices about how economies work. And that is what causes the problem. Greenspan is very much a libertarian. And that is the reason why he was so wrong. He believed things about the economy that simply were not true. And because of that he acted in ways that were horrendously dangerous.

Not true. That's why the Fed is independent. The Fed has a long history of not doing what the government wants. That's why Reagan replaced Volker with Greenspan.

People are only mistrustful out of ignorance and the propaganda it spreads.

Volker did not 'wreck the economy'. He engineered a recession to bring inflation under control. It wasn't pretty, but it was necessary. In the long run the inflation at that rate would have been worse.

Hmmmm, I dunno Cutlass. You say that people are mistrustful out of ignorance and the propaganda it spreads. But in the same breath you explain how Volcker "engineered a recession", talk about how Reagan got rid of Volcker for political reasons, then talk about how awful Greenspan's policies were! You've previously talked about how Greenspan's monetary policy led to the housing bubble as well. Fed malfeasance and abuse spanning FOUR DECADES! This does not sound like ignorance, nor propaganda. This sounds to me like tangible hard facts. We're talking about why people distrust the fed, and you go on to talk about Fed actions that you yourself don't like and hit on talking points that make you distrust people like Greenspan. But then you try to impugn others, in an out of hand manner mind you, of only distrusting the fed based upon ignorance and propaganda, pretending like they couldn't possibly have a justifiable answer for not trusting the fed. Seems double-standardish to me. I mean, why on earth would people distrust an institution that purposefully engineers an economy into recession and renders them unemployed or unable to buy a house? Which reminds me, wasn't it you who said that I needed to stay put in my cramped apartment so that people who couldn't afford their mortgages could be subsidized by myself and others like me so they could stay in their homes? Why would people be any more distrustful of bankers in 2010 who engineered a bubble that caused a recession than people in Washington directly engineering recessions and killing their quality of life? You defend an overt, purposeful, fiat economic deflation in one era, yet today you will not defend much needed economic deflation to normalize various commodity prices. You're basically saying that it was okay for governments to raise interest rates via fiat so that people like my parents couldn't afford homes, and now you're saying that it's okay for governments to artificially boost home values so people like me can't afford homes. Just perplexing.

Libertarians aren't in the business of manipulation. They are like socialists, communists, or anarchists. They have an established ideology that is based on morals. They view the world through a lens that they wish to see applied across the entire breadth of society and believe that their ideologies would result in a betterment of all society on some basis. While Libertarian policies may certainly help some, and hurt others, it is by no means an ideological stance that is steeped in only benefiting a few people any more than socialism or communism is. Greenspan was certainly not a libertarian in action. I think it would be an extreme stretch to find a Libertarian who believes in monetarism, fiat currency, and targeted inflation rates. Much less the kind of monetarism that Greenspan used to, quite literally, engineer the economy and try to keep us floating through the 2000s after the tech bubble burst. Greenspans hands in the innards of the economy directly led to a number negative economic consequences, you admitted so. This is not emblematic of laissez faire economics forwarded by Libertarians.

 

[Cutlass]

Those policies did not cause the Depression. The Depression was merely the bursting of the economic bubble that was caused by the Fed's artificially low interest rates during the '20s.

Wrong.

How can you say something like that when we haven't had a libertarian administration since Grover Cleveland?

Alan Greenspan is a libertarian. Appointing him to run the Fed is one of the key mistakes that lead to the economic collapse. Because he ran the Fed in accordance with libertarian principles. Which is to say, he refused to do his job.

Would you care to back this up?

It's obvious if you think about it.

Somewhere on the Internet, someone has made an image macro saying "you fail everything forever". When I find it, I will present it to you.

Which doesn't change the fact that libertarians manipulate the government to serve their purposes. That's what deregulation was all about.

 

[Theige]

Who cares if they have a targeted inflation rate if there is never a gaurantee that it can be maintained or is positive for society in the first place?

Well it's without question a positive for society.

But you can't guarantee the inflation rate. That's like trying to guarantee the weather.

 

[Cutlass]

Hmmmm, I dunno Cutlass. You say that people are mistrustful out of ignorance and the propaganda it spreads. But in the same breath you explain how Volcker wrecked the economy, talk about how Reagan got rid of Volcker for political reasons, then talk about how awful Greenspan's policies were! You've previously talked about how Greenspan's monetary policy led to the housing bubble as well. Fed malfeasance and abuse spanning FOUR DECADES! This does not sound like ignorance, nor propaganda. This sounds to me like tangible hard facts. We're talking about why people distrust the fed, and you go on to talk about Fed actions that you yourself don't like and hit on talking points that make you distrust people like Greenspan. But then you try to impugn others, in an out of hand manner mind you, of only distrusting the fed based upon ignorance and propaganda, pretending like they couldn't possibly have a justifiable answer for not trusting the fed. Seems double-standardish to me. I mean, why on earth would people distrust an institution that purposefully engineers an economy into recession and renders them unemployed or unable to buy a house? Which reminds me, wasn't it you who said that I needed to stay put in my cramped apartment so that people who couldn't afford their mortgages could be subsidized by myself and others like me so they could stay in their homes? Why would people be any more distrustful of bankers in 2010 who engineered a bubble that caused a recession than people in Washington directly engineering recessions and killing their quality of life? You defend an overt, purposeful, fiat economic deflation in one era, yet today you will not defend much needed economic deflation to normalize various commodity prices. You're basically saying that it was okay for governments to raise interest rates via fiat so that people like my parents couldn't afford homes, and now you're saying that it's okay for governments to artificially boost home values so people like me can't afford homes. Just perplexing.

Libertarians aren't in the business of manipulation. They are like socialists, communists, or anarchists. They have an established ideology that is based on morals. They view the world through a lens that they wish to see applied across the entire breadth of society and believe that their ideologies would result in a betterment of all society on some basis. While Libertarian policies may certainly help some, and hurt others, it is by no means an ideological stance that is steeped in only benefiting a few people any more than socialism or communism is. Greenspan was certainly not a libertarian in action. I think it would be an extreme stretch to find a Libertarian who believes in monetarism, fiat currency, and targeted inflation rates. Much less the kind of monetarism that Greenspan used to, quite literally, engineer the economy and try to keep us floating through the 2000s after the tech bubble burst. Greenspans hands in the innards of the economy directly led to a number negative economic consequences, you admitted so. This is not emblematic of laissez faire economics forwarded by Libertarians.

I told you Volker didn't wreck the economy. If you want to go back and edit your tread to not manipulate what I said to prove your point, maybe I'll respond to you more.

 

[countrygrl]

Well it's without question a positive for society.

But you can't guarantee the inflation rate. That's like trying to guarantee the weather.

The only thing that is without question is how shamelessly monetarists hide behind the structural economic wreckage they've created by building a false economy predicated on tens of trillions of dollars of totally unsustainable debt.

Reality is about to come calling as inflation is raising its ugly head and we're still at 9% unemployment. People are spending more and more of their earnings on fuel and food, which is keeping the prices of other goods depressed, distorting the severity of inflation. If Beranke is going to hold true to his promise and begin withdrawing dollars from circulation to hinder inflation the real reality of the monetarists wreckage will finally come home to roost.

One thing is certain, both our federal and household debts will come calling one day. And then the monetarist engineers will be the ones with mud on their faces while the rest of us try to pick up the pieces and hit the reset button.

 

[BuckeyeJim]

@ Cutlass, done and done. Didn't mean any harm there, brother. It's just that when you get on a roll, you can sometimes transpose your thoughts into others quotes. Know what I'm sayin'?

 

[Arwon]

I think it would be an extreme stretch to find a Libertarian who believes in monetarism, fiat currency, and targeted inflation rates.

Uh.

http://www.ldp.org.au/
http://www.act.org.nz/
http://en.wikipedia.org/wiki/Free_Democratic_Party_(Germany)

Show me any of these guys calling for a gold standard or the abolition of the independent central bank.

If you're defining "libertarian" as only the mouth-breathing gold-bug cargo-cult-Austrian fringe in the United States, then sure, but that's hardly the be-all of libertarianism.

 

[Ajidica]

The Constitution does not dictate economic policy. It does, however, specify which powers are given to the Federal government and which powers are reserved for the states.

I'm not going to explain McCulloch v. Maryland again for you. The Federal Government has the right to establish a central bank as a result of the necesary and proper clause and the federal supremacy clause.
Your decision is simple: Do you overturn two centuries of precedent with a wave of your hand or do you continue spouting long-discredited constitutional and economic ideas?

That's okay. Most Americans make the same mistake. In reality, the state governments were supposed to decide what was or wasn't in accordance with the Constitution.

If you honestly believe this, then go to your middle school civics teacher and ask for an educational refund. When the Supreme Court was created, nobody really knew what to do with it. The framers of the Constitution were all still around when Marbury v. Madison established judicial review. If they felt judicial review was a bad idea then they would have amended the Constitution. Instead, they used the new role of the Supreme Court to the advantage of the country.
Furthermore, Congress established the jurisdiction of the supreme court with the appeals system. They set the system up to grant the Supreme Court the authority to act in areas in which the states were not qualified, two district courts had ruled differently, or a state court had found a federal law unconstitutional (or upheld one of their laws over the federal law).

This is why they, rather than the ignorant masses, were given the power to elect Senators.

Decisions involving the legislature do not equate to decisions involving the Judiciary. That the Senate was set up that way was to appease the far less populous New England states.

Alexander "Screw this republic stuff, we should have a monarchy" Hamilton.

Hamilton was many things but he was far from a Monarchist.

Hmm... it seems to me that in a healthy economy, banks would combat inflation by increasing the interest rates on the money that they loan out, and combat deflation by lowering the interest rates that they offer to their depositors. The total amount of borrowing would remain the same.

In a healthy (and well ordered) economy, yes. However, becuase we live in an imperfect world, that rarely works out. Interest rates are lowered to pull ourselves our of a depression, and then they stay low as it helps businesses increase their short term profits. Much like tax cuts in fact.

Congress has the collective intelligence of a cage full of monkeys throwing poop at each other.

I would expect a throwaway comment like this from someone who is intimately aquainted with these feces throwing simians.

That's exactly what NORFED tried to do with Liberty Dollars before some Federal idiot decided that "private voluntary barter currency" meant the same thing as "legal tender", and got them shut down.

Sales tax and accounting laws come into effect here. If you try to purchase something with a 'Liberty Dollar' you almost always have to pay sales tax. Unfortunately, your 'Liberty Dollar' doesn't count when paying sales tax so you can't use it there.
Furthermore, if it is used as a barter exchange issues abound involving whether it actualy is worth anything as it has no use outside a small enviroment.

How can you say something like that when we haven't had a libertarian administration since Grover Cleveland?

So actively breaking strikes with federal troops, creating the ICC, increasing income tax, and spending money to keep people froms starving is now Libertarian? Good to know.

 

[BuckeyeJim]

Uh.

http://www.ldp.org.au/
http://www.act.org.nz/
http://en.wikipedia.org/wiki/Free_Democratic_Party_(Germany)

Show me any of these guys calling for a gold standard or the abolition of the independent central bank.

If you're defining "libertarian" as only the mouth-breathing gold-bug cargo-cult-Austrian fringe in the United States, then sure, but that's hardly the be-all of libertarianism.

I said nothing about gold bugs. I was talking about fiat currency. As in, taking the paper currency and turning it into whimsical monopoly money that can be played around with at one's heart's content. While those sites do not directly talk about central banking, it doesn't mean that it isn't an issue. And I seriously doubt that meddling with currency to manipulate society is high on their agenda. If liberty and freedom is their pulse, then they won't do these things.

 

[Cutlass]

Hmmmm, I dunno Cutlass. You say that people are mistrustful out of ignorance and the propaganda it spreads. But in the same breath you explain how Volcker "engineered a recession", talk about how Reagan got rid of Volcker for political reasons, then talk about how awful Greenspan's policies were! You've previously talked about how Greenspan's monetary policy led to the housing bubble as well. Fed malfeasance and abuse spanning FOUR DECADES! This does not sound like ignorance, nor propaganda. This sounds to me like tangible hard facts. We're talking about why people distrust the fed, and you go on to talk about Fed actions that you yourself don't like and hit on talking points that make you distrust people like Greenspan. But then you try to impugn others, in an out of hand manner mind you, of only distrusting the fed based upon ignorance and propaganda, pretending like they couldn't possibly have a justifiable answer for not trusting the fed. Seems double-standardish to me. I mean, why on earth would people distrust an institution that purposefully engineers an economy into recession and renders them unemployed or unable to buy a house? Which reminds me, wasn't it you who said that I needed to stay put in my cramped apartment so that people who couldn't afford their mortgages could be subsidized by myself and others like me so they could stay in their homes? Why would people be any more distrustful of bankers in 2010 who engineered a bubble that caused a recession than people in Washington directly engineering recessions and killing their quality of life? You defend an overt, purposeful, fiat economic deflation in one era, yet today you will not defend much needed economic deflation to normalize various commodity prices. You're basically saying that it was okay for governments to raise interest rates via fiat so that people like my parents couldn't afford homes, and now you're saying that it's okay for governments to artificially boost home values so people like me can't afford homes. Just perplexing.

Libertarians aren't in the business of manipulation. They are like socialists, communists, or anarchists. They have an established ideology that is based on morals. They view the world through a lens that they wish to see applied across the entire breadth of society and believe that their ideologies would result in a betterment of all society on some basis. While Libertarian policies may certainly help some, and hurt others, it is by no means an ideological stance that is steeped in only benefiting a few people any more than socialism or communism is. Greenspan was certainly not a libertarian in action. I think it would be an extreme stretch to find a Libertarian who believes in monetarism, fiat currency, and targeted inflation rates. Much less the kind of monetarism that Greenspan used to, quite literally, engineer the economy and try to keep us floating through the 2000s after the tech bubble burst. Greenspans hands in the innards of the economy directly led to a number negative economic consequences, you admitted so. This is not emblematic of laissez faire economics forwarded by Libertarians.

What you are not getting is the role played by the Fed and various actors. Yes, Volker engineered a recession. But why? Because the situation required it. Not pretty, but necessary.

Greenspan got the job in part because libertarians had been successful in selling their ideology. The whole ideology of government should do nothing, which libertarians have been championing, have been fighting for, have been doing everything in their power to promote, is the core of the problem.

Greenspan mismanaged the Fed because of his libertarian ideology. He believed things that were objectively not true. And acted on those beliefs. And, as such, was a major contributor to later problems in the whole economy.

All that said, in the long run, an independent central bank results in less inflation for the economy than would have existed with a more political central bank. And while I have numerous disagreements with individual policies, I am well aware that the alternative is worse.

What made the Fed act wrongly in the 1920s-30s was that the knowledge of what they should have done had net been developed. What made the Fed act wrongly in the Aughts was that a Fed chairman had an ideology at odds with the mission and reason for the existence of the Fed.

I don't care what rules you want to write, you cannot divorce the actions and effectiveness of any organization from the fallible people running it. You have to have the right people.

It is the ideology behind deregulation, the ideology pushed by libertarians, that leads to libertarians being put in positions that they should not be allowed in. Greenspan was put in the Fed by Reagan, GHW Bush, Clinton, Clinton again, GW Bush, and then GW Bush again. And approved by Congress all these times. What lead people to think he was competent was the spread of the libertarian ideology. And, you know, Wall St wanted him. Why? Because they wanted a libertarian.

You cannot separate what happened from the active campaign to push the libertarian ideology.


Edit, sorry I missed this line.

I think it would be an extreme stretch to find a Libertarian who believes in monetarism, fiat currency, and targeted inflation rates.

Milton Friedman The father of monetarism is the father of libertarian economic thought in the US. And no fan of gold, IIRC.

 

[BuckeyeJim]

Thanks for that, but I don't think it discusses my criticism of your post or how you handle Fed critics. You've now listed and discussed in further depths about the problems that can be associated with the fed. You even talk about the fallibility of people. This is a primary reason why people distrust the institution. On top of that, it's an institution that must be run by people, who are fallible, and they do not have adequate oversight. I, for one, am no fan of fallible people engineering the whole god damn friggin economy with very little oversight. The game is too enormous and too complex for us to arrogantly believe that even the BEST people can keep the train on the tracks and not make mistakes. I'm also not big on folks in government picking and choosing losers. I'm so glad I have a position that doesn't pick winners and losers, but instead promotes and enables the disadvantaged to get their lives together and improve their lot on equal terms. Otherwise I couldn't work where I work.

 

[Arwon]

The point is it's the crap rules and the libertarian ideology surrounding the regulation of the financial system that's led to problems with the American central bank, not the inherent characteristics of central banks and their role.

I said nothing about gold bugs. I was talking about fiat currency. As in, taking the paper currency and turning it into whimsical monopoly money that can be played around with at one's heart's content. While those sites do not directly talk about central banking, it doesn't mean that it isn't an issue. And I seriously doubt that meddling with currency to manipulate society is high on their agenda. If liberty and freedom is their pulse, then they won't do these things.

Wait, what do you think fiat money is? What is your non-gold, non-fiat alternative currency proposal?

 

[Cutlass]

Thanks for that, but I don't think it discusses my criticism of your post or how you handle Fed critics. You've now listed and discussed in further depths about the problems that can be associated with the fed. You even talk about the fallibility of people. This is a primary reason why people distrust the institution. On top of that, it's an institution that must be run by people, who are fallible, and they do not have adequate oversight. I, for one, am no fan of fallible people engineering the whole god damn friggin economy with very little oversight. The game is too enormous and too complex for us to arrogantly believe that even the BEST people can keep the train on the tracks and not make mistakes. I'm also not big on folks in government picking and choosing losers. I'm so glad I have a position that doesn't pick winners and losers, but instead promotes and enables the disadvantaged to get their lives together and improve their lot on equal terms. Otherwise I couldn't work where I work.

What you are missing is an understanding of the alternatives. And the alternatives are all much worse. You want to get rid of the Fed, what do you replace it with? Capitalism cannot stand without an activist central bank to keep the economy working when the private sector inevitably collapses it over and over again.

There is a point beyond which you push people past their limits. The rollercoaster of boom and crash, boom and crash, every 10-20 years a depression, that is the alternative. It is far, far, worse.

 

[Ajidica]

So in essence even a mediocrely-managed Fed is better then no Fed in the long run?

 

[Cutlass]

So in essence even a mediocrely-managed Fed is better then no Fed in the long run?

By an order of magnitude. From 1800 or so until the Great Depression, the US had a very serious economic crisis or depression more often than we have had mild recessions between 1945 and 2008. There is no comparison in how much better off we are.

 

[BuckeyeJim]

The point is it's the crap rules and the libertarian ideology surrounding the regulation of the financial system that's led to problems with the American central bank, not the inherent characteristics of central banks and their role.

Can we please not have this side of the thread turn into endless partisan rhetoric? Everyone has their hand in this. Everyone. There are tons of entities out there that played their part that Libertarians would like to see go away.

Wait, what do you think fiat money is? What is your non-gold, non-fiat alternative currency proposal?

Money is merely a medium used for trade or barter. It makes transactions easier so to speak. Whether that is gold, a vile of oil, or money doesn't matter. It's an item that represents a portion of the sum total of goods within an economy. The fiat part is the manipulation. That is why I said that coining gold bills (a response to El Mach last night) is really no less vulnerable to manipulation than paper currency. It's the fiat part that is problematic. Not the paper currency in and of itself.

What you are missing is an understanding of the alternatives. And the alternatives are all much worse. You want to get rid of the Fed, what do you replace it with? Capitalism cannot stand without an activist central bank to keep the economy working when the private sector inevitably collapses it over and over again.

There is a point beyond which you push people past their limits. The rollercoaster of boom and crash, boom and crash, every 10-20 years a depression, that is the alternative. It is far, far, worse.

This isn't about alternatives. This is merely about distrust. Arwon asked why people would distrust the Federal Reserve. You have outlined plenty of examples that justify peoples distrust of independent, unregulated, monopolized central banking. That's all I care about in this discussion. Merely a justification of that distrust.

I will only pose one dark theoretical question for you.

You believe that getting rid of the fed will result in a rollercoaster ride of depressions every 10-20 years which may be a justifiable if unprovable position that relies on many conditions to be put in place. But it is indeed possible if you examine the economic turmoil of the 1800s.

But I would like to point out that America persevered all throughout the 1800s and through the depression. There were no real riots. The country didn't collapse. America didn't devolve into some apocalyptic dystopia. In fact, after each and every recession and depression we came out much stronger than we were before. American resilience and grit determination kept us moving forward and progressing past most European nations, and competing with the UK which was already developed and had a massive empire.

So what about now? When we have had decades and decades with only the smallest farts for recessions? Mild recessions. Tame recessions. Really short recessions. What happens when for the last forty years our society has kind of transformed into a people who cannot move backwards under any circumstance? A society entrenched in entitlement programs. A society that has been paying into government programs for decades with expectations that there will be some sort of pay off.

What happens if all this should one day come to an end? What if the feds current policies are setting us up for a decades long depression of 20-33% unemployment? What happens when the government can pay out social security or medicaid? What happens when nobody will lend to us any more? We can't lower interest rates any more. QE's effects have been minimal at best. We have gigantic federal deficits, and even more household debt. You posted graphs for me just last week showing how we've gone from a saving country to a debt filled country. All of these policies have been put in place to keep the economy moving forward and prevent or people from feeling negative effects.

BUT WHAT HAPPENS IF THIS FALLS APART!

I believe that the possible social side effects associated of not getting out of this current recession would be way, way, way worse than handling an expected depression every decade or so when you know you will emerge from it. If things get worse, if we have to cut back on social programs, if social security collapses, the crap is really gonna hit the fan.

 

[countrygrl]

By an order of magnitude. From 1800 or so until the Great Depression, the US had a very serious economic crisis or depression more often than we have had mild recessions between 1945 and 2008. There is no comparison in how much better off we are.

You didn't do anything better. You just kicked the can down the road and covered up the damage with unsustainable debt that my generation will have to pay for so you can all live comfortably. Don't flatter yourself or any monetarists. It's all a false house of cards. You'd have a point if we didn't have tens of trillions of debt.

 

[Hygro]

You didn't do anything better. You just kicked the can down the road and covered up the damage with unsustainable debt that my generation will have to pay for so you can all live comfortably. Don't flatter yourself or any monetarists. It's all a false house of cards. You'd have a point if we didn't have tens of trillions of debt.

Please read Supercapitalism by Robert Reich. You will enjoy it, I promise.

 

[Ajidica]

You didn't do anything better. You just kicked the can down the road and covered up the damage with unsustainable debt that my generation will have to pay for so you can all live comfortably. Don't flatter yourself or any monetarists. It's all a false house of cards. You'd have a point if we didn't have tens of trillions of debt.

Huh? The Fed manipulating intrest rates, money supply, and other banking factors does not mean 'our generation' will have to pay for it. Irresponsible fiscal policies combined with poor monetary policies caused the issue. If either group had the ability to pull its head out from under the sand our current recession would either have not occur or have been far less devestating. With the fiscal policy, the blame falls almost equaly (I'm not looking to get into a discussion about fingerpointing). However, due to the nature of the Fed, they recieve more blame then Congress for the recession. The blame for the Feds poor decisions can be traced to Greenspan dropping interest rates. (And leaving them dangerously low. Bernanke didn't help here and raising them now would be economic suicide while failing to address actual issues.) Greenspan dropped interest rates while at the same time establishing a precedent for 'bailing out' companies. In short, Greenspans (and other fed chairmen) policies of free cash for banks with the established precedent of bailouts laid the groundwork for our current issues while poor fiscal policy and banking regulations going back to Reagan laid the seed for our recession.

 

[countrygrl]

Please read Supercapitalism by Robert Reich. You will enjoy it, I promise.

Two years later his book Supercapitalism: The Transformation of Business, Democracy, and Everyday Life was published. In it he argued turbo-charged corporate competition, fueled by consumers and investors seeking the best possible deals from anywhere in the world, was generating severe social problems. But governments were failing to address them because big corporations and Wall Street firms were also seeking competitive advantage over one another through politics, thereby drowning out the voices of ordinary citizens. The answer was to keep corporations focused on making better products and services and keep them out of politics. "Corporate Social Responsibility" is essentially forbearance from activities that undermine democracy.

Sounds interesting. I'd pick it up. Especially with summer approaching soon. But what does this have to do with rampant debt spending and how monetarists hide behind it to try and claim their theories are successful in application?