I think it's silly to abolish the Fed outright. We just need to get rid of the laggards like Greenspan and Bernanke who always come in too little too late and then go on a rate cutting frenzy until we have another bubble. But if we were to eliminate the Fed altogether, that will only skew the balance in favor of the wealthy class who alone will have a complete access to money supply. Without the regulation of the money supply, those who will suffer the most from inflation and other unintended crises of the boom-and-bust of the business cycle will be the have-nots.
I agree the Fed should be abolished for a number of reasons but delegating the power to coin money back to Congress would have catastrophic consequences. They issued George Freaking Bush a blank check to invade the middle east, they have raped the Social Security fund, and Medicare is on the verge of imploding. What would Congress do with the ability to coin an unlimited amount of money given their history? Giving that power back to Congress would be a disaster but the Fed needs to go nonetheless. They are a leech on society.
Why do you have to "control aggregate demand?" If there were no Fed (or a Fed essentially stripped of its powers) demand for money would simply be set by the market. What is it about this process that needs to be controlled?
It's a pretty stunning assertion to say that the Fed is independent of politics. The political pressures are of a different character, but they are not absent. Indeed, it might be all the more dangerous because Fed policy is subject to the whims of "experts" who musn't be questioned. You get the same kind of cocky self-assuredness that made the LTCM guys think that academia and theory had anything to do with how the world and the markets actually operate. The question is whether a "monetary policy" is something that needs to be centrally-planned. If the quantity of dollars in circulation were simply fixed (or increased by some fixed proportion on a routine schedule, to account for hoarding and generate some inflation over time) then there would be no need for a bureaucracy with such powers, and it would have no capacity to make the kind of mistakes we've seen repeatedly. The market would match supply and demand. Of course you would have business cycles and you wouldn't have constant full employment, but these are unavoidable anyway. For that matter, the Fed itself is a major source of market shocks and uncertainty.
this is something i have wondered myself. i have often thought the same question. the problems i have found are as follows. the value of the currency may have to be altered for international trade. the value of the currency could be diminished and prevent the currency as acting as a medium of exchange although unlikely. the amount of money might be to low reducing the ability to trade. there are some other and i am not saying i agree with them but that is what people will say.
Well, in a free market these problems are all self-correcting. The real reason that we want to "control aggregate demand" is because people have this idea that recessions and the business cycle are some unnecessary evil that can be eliminated through enough government "control" and intervention. In fact this is ridiculous. Anybody who trades or even watches the markets knows that markets are cyclical by nature - and so is the broader economy. The more one looks at it, the clearer it becomes that the basic assumptions on which the Fed is built are completely flawed.
Good thread so far my take away. The Fed has suffered from mission creep an it has been coopted by the executive branch the idea of a combative FED chief like Volcker seems so distant. It's clear that today the NY fed exerts to much power. Whether by intention orthe reality the financial world is in NY needs to be addressed A fixed money supply geared to some inflation constant I believe may be needed, I think it can work within a band that fluctuates. But part if the problem we have is solely not due to FED fund rate. Remeber we raised rates in 04 and it do nothing to impact Mortage rAtes one because of the reserve status and two because of the MBS market that sprung up over the last decade defintely the idea of ending the FED with majority democrat congress. What kind of monstrosity do you think we would get?
please post a link or PM if you want to keep it private the problem I see is that fiscal policy is the purview of congress not really a FED responsibility part of the problem of the FED is they have been to accomadating to deficits run by the government. In some ways maybe the fed has done good a job at cleaning up the governments fiscal policies. Also we have really abused the benfits being a reserve currency. I don believe there is. Modern econmic model that takes account the uniqueness of the US position. This is the main flaw I have with Austrian economics. I believe taxation is a grave problem in this country I assuming your tax model may promote more stable savings and investment going back on your point of having fiscal policy control the value of the currency. I am concerned that such a mechanism would eventually be exploited by th politicians no matter. How many safeguards laws get changed. Sorry for the typos iPhone is not ideal for long posts.
It was also amazing that a single individual - Greenspan - could play his put based on his own philosophy, regardless of any "board of governors" opinions in the Fed. That made it decision by monarchy.